In turn, firms ramped up purchasing activity and raised staffing levels for the third month running. Higher demand for inputs imparted some pressure on supply chains, and input costs increased at a faster pace.

The headline S&P Global UK Construction Purchasing Managers’ Index (PMI) – a seasonally adjusted index tracking changes in total industry activity – rose sharply to 55.3 in July from 52.2 in June. The reading signalled a marked monthly expansion in total activity in the construction sector, extending the current sequence of growth to five months. Moreover, the rate of expansion was the fastest since May 2022.

All three categories of construction saw activity increase in July as work on housing projects returned to growth. Commercial activity increased solidly, but the fastest expansion was seen in civil engineering activity, where the rate of growth quickened to the sharpest in almost two-and-a-half years.

According to respondents, success in securing new orders was the main factor leading to a rise in construction activity at the start of the third quarter. New business expanded for the sixth month running, and at a marked pace that was the strongest since April 2022. Alongside a general improvement in market demand, there were also reports that customer confidence had strengthened, making them more willing to release previously paused projects.

Rising workloads led construction firms to expand both their purchasing activity and employment more quickly in July. Staffing levels were up for the third consecutive month, and at a solid pace that was the fastest for a year. Meanwhile, a strong rise in purchasing activity was the most pronounced in almost two years. Increased demand for inputs put some pressure on suppliers in July, resulting in broadly unchanged lead times during the month. This ended a 16-month sequence of improving vendor performance. Panellists also reported issues with manufacturing and transportation. On the other hand, some respondents indicated that suppliers had sufficient stocks to keep on top of orders.

The rate of input cost inflation meanwhile showed signs of picking up as suppliers raised prices in line with stronger demand. The solid increase in input costs was the joint-fastest in 14 months, equal with that seen in January. That said, the rate of inflation was still much weaker than the series average.

Sub-contractor usage rose for the fourth month running, and at a solid pace. Although sub-contractor availability continued to increase markedly, the latest rise was the least pronounced since June 2023. The rates charged by sub-contractors increased modestly again.

Construction firms remained strongly optimistic that activity will expand over the coming year, although sentiment dipped to a three-month low in July. Improving client confidence is predicted to help lead to growth of new orders and subsequently activity. New product development is also set to support activity. Close to 53% of respondents predicted a rise in activity over the next 12 months.

Andrew Harker, economics director at S&P Global Market Intelligence, said: “The election-related slowdown in growth seen in June proved to be temporary, with the pace of expansion roaring ahead in July. Firms saw the strongest increases in new orders and activity since 2022 as paused projects were released amid reports of improved customer confidence.

“The strength of demand moved the sector closer to capacity, bringing a recent period of improving supplier performance to an end. There were also signs of inflationary pressures picking up, something that will need to be watched closely if demand strength continues in the months ahead.”

Jordan Smith, technical director at Thomas & Adamson, part of Egis Group, said: “The growth in construction activity is beginning to pick up pace again, with genuine optimism that the new government’s plans will act as a further catalyst for the sector as a whole. Our experience is that the sector’s recovery has been relatively patchy in the recent period, with new projects largely coming via specific sectors – such as refurbishment of existing assets and public sector works. We are hopeful this recovery and increased spending will be spread more evenly across multiple sectors and throughout the UK economy over the remainder of the year.”

Kelly Boorman, national head of construction at RSM UK, said: “The headline construction PMI in July reached the highest level since May 2022, showing the industry is continuing its recovery. This reflects positive sentiment in response to the government’s focus on local housing targets with greater transparency towards planning and infrastructure. This was seen in upticks in civil engineering activity, housing activity and new orders indices, a sign that things are moving in the right direction, especially as housing activity reached its highest point since September 2022. The acceleration in housing activity is also bolstered by the recent cut in base rates which will stimulate the mortgage market.

“The monthly increase in civil engineering activity as a result of mobilisation of large projects and an uptick in new orders to 55.6 confirms that government continues to focus on delivery of infrastructure projects. By prioritising planning and housebuilding in conjunction with local authorities developing long-term infrastructure strategies, this ensures housing is developed locally, with access to education, healthcare and transport services.”

She added: “But, there has been some volatility in the market, due to a lack of access to affordable funding, the impact of wet weather and ongoing labour shortages. With the availability of subcontractors falling in July, there is likely to be a tightening of labour and the supply chain due to increased activity, so there are some concerns over whether housing targets are achievable.

“To avoid housebuilding targets from becoming pie in the sky, construction needs more clarity on where labour and funding is coming from to realise housing volumes, especially businesses with plans for growth and ability to manage working capital.”

Thomas Pugh, economist at RSM UK, said: “The strong rebound in the S&P/CIPS Construction PMI in July is another sign that the broad economic rebound, which had taken hold in the first half of the year, has continued into Q3.

“Moves by the new government to ease planning restrictions have probably boosted sentiment, especially around house building. The cut in interest rates in early August will be followed by at least one more cut this year, which will also be supportive of the housing market, which should feed through into housebuilding.

“As a slight note of concern, the input price balance rose to 53.7. There is clearly a huge shortage of skilled labour in the industry and as output ramps up, demand for that limited pool of labour may put upward pressure on costs. That will be one area that both the government and the Bank of England will want to watch closely.

“Overall, the PMIs are still painting a picture of a gradually recovering economy. Indeed, new orders in the construction industry rose to their highest level since April 2022. Now that inflation is back at 2% and interest rates have started falling, there is clear evidence that consumer and business confidence is returning. That should result in a boost to consumer spending and business investment over the rest of the year, which will support the recent acceleration in GDP growth.”

Paul Sloman, engineering and construction sector leader at PwC UK, said: “This month’s PMI reading of 55.3 is a signal of recovery, market confidence and growth for the sector. New business is now expanding at its strongest pace in over two years, employment levels have risen for a third consecutive month and purchasing activity is at levels not seen in almost two years.

“The sector’s challenges in skills shortages, training and recruitment are well-documented, so it is encouraging to see employment growing at its fastest pace in a year, owing to the continued agility and adaptability of construction businesses.

“Housing projects also returned to growth, which is no surprise given the prominent focus displayed by the new Labour government in reinstating annual housing targets and seeking to ease the planning system. Overall, the sector seems to be preparing itself for a busy second half of the year, with the PMI reporting over half of businesses forecast a rise in activity over the next 12 months.”