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Rise in UK manufacturing and construction activity

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It is not surprising that the IMF recently raised the growth forecast for UK’s economy, considering the progress of two significant sectors — construction and manufacturing. Construction output grew at the fastest rate in nearly seven years in May as a record increase in new orders spurred on the industry.

IHS Markit’s Construction Purchasing Managers’ Index jumped to 64.2 in May from 61.6 the previous month, its highest level since September 2014. The reading surpassed economists’ forecasts of 62.3, with anything over 50 signifying growth.

Growth was fastest in the housebuilding sector, reflecting a boom in the housing market, with prices surging by more than ten per cent in annual terms. The PMI’s gauge of new orders shot up to its highest level since the survey started in 1997. “Even allowing for the fact that the purchasing managers’ surveys can overstate movements in the economy at times of rapid change, the level of the May construction PMI is impressive’’, said Howard Archer, chief economic adviser to the EY Item Club.

“UK construction companies reported another month of rapid output growth amid a surge in residential work and the fastest rise in commercial building since August 2007’’, said Tim Moore, economics director at survey compiler IHS Markit.

Cost pressures for construction companies rose at the fastest rate since record began, with a sharp increase in supplier delivery times. “Despite severe challenges with materials availability, construction firms remain highly upbeat about their near-term growth prospect’’, Moore added.

Employment growth in construction firms was the highest since 2014, with demand for staff surging to a record pace in May. The survey added to signs that the economy is on track for a swift rebound after shrinking ten per cent last year.

The Bank of England last month backed the economy to grow at its fastest rate since World War Two during 2021. “Looking ahead, however, growth likely will start to slow as supply-side constraints bite’’, said Samuel Tombs, chief economist at Pantheon Macroeconomics.

Manufacturing: The UK’s manufacturing growth gathered pace in May as production increased for the 12th consecutive month with demand particularly strong from the EU, the US and China.

The IHS Markit/CIPS UK Manufacturing Purchasing Managers’ Index rose from 60.9 in April to 65.6 last month, marking the highest reading since 1994. The growth was driven by a third straight month of higher new orders, helped by stronger client confidence and the reopening of more parts of the economy.

Employment in the sector also rose for a fourth straight month due to the increase in business. However, delays related to supply chains due to Brexit and Covid-19 and input shortages pushed prices up again, leading to fears of inflation.

Director at IHS Markit, Rob Dobson, said: “The UK PMI surged to an unprecedented high in May, as record growth of new orders and employment supported one of the steepest increases in production volumes in the near 30-year survey history.

“Growth is being boosted by the unlocking of economies from Covid restrictions and ongoing vaccination programmes. This is being felt across the globe, as highlighted by a record rise in new export business during the latest survey month.”

Sarah Banks, managing director of freight and logistics at Accenture Global said: “While figures are positive overall, the worsening supply situation is still a concern, with rates of both input costs and selling price inflation running far above anything previously seen.

“Shipping delays and material shortages are driving backlogs of uncompleted work and the surge in manufacturing orders is leading to many firms struggling to boost operating capacity to keep up with demand.”

(The writer is our foreign correspondent based in the UK)

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