Autumn Statement 2016: House building
Neil Hall/ Reuters

Britain's construction sector performed much better than expected in May, recording the sharpest rate of increase in 17 months, a survey released by IHS Markit on Friday (2 June) showed.

The closely watched Markit/CIPS UK Construction Purchasing Managers' Index (PMI) stood at 56 last month, compared with analysts' expectations for a 52.6 figure and with the 53.1 reading recorded in April.

While the latest reading was still much weaker than the post-crisis peak of 64.4 seen in January 2014, it also marked the sharpest rate of expansion in 17 months.

Markit said a sharp and accelerated rise in residential work was a key factor in supporting overall construction activity in May, while growth in the housing sector recovered after slumping to a seven-month low in March.

Residential building activity rose at the fastest pace since December 2015, on the back of new development projects and resilient underlying demand conditions. The report also recorded solid performances in the civil engineering and commercial building sub-sectors, while output in commercial development rose at the fastest pace since March last year, even though it remained the weakest performing sector.

Resilient demand from the housing sector led to business intakes rising at the fastest rate in the year-to-date so far, while employment numbers across the sector continued to grow on the back of the ongoing expansion.

Meanwhile, overall input prices rose at the slowest pace for seven months. Construction firms said the pound's ongoing weakness had led to intense negotiations with suppliers, but some added the peak phase of price hikes for imported materials seems to have passed.

"House building was the key growth driver, with work on residential projects rising at the fastest pace since December 2015," said Tim Moore, senior economist at IHS Markit.

"A sustained rebound in residential building provides an encouraging sign that the recent a soft patch for property values has not deterred new housing supply. The forward-looking elements of the latest survey are reassuring for the construction sector, notably the acceleration in new business growth to its strongest so far this year.

A report released earlier this week showed Britain's manufacturing sector slipped back from a three-year high in April, but still showed robust growth buoyed by a weak pound and rising export orders.

Markit's manufacturing PMI fell to 56.7 in May from 57.3, compared with analysts' expectations for a 56.5 reading and marking the tenth consecutive month of expansion.