A closely followed purchasing managers’ survey showed firms took on more workers to deal with a sustained recovery in new work after a “soft patch” during the first quarter.
Job creation is at its strongest since January last year. Despite an increase in the cost of imported materials, the rate of inflation has eased since the start of the year, according to the IHS Markit/CIPS snapshot of the industry, which makes up about 6 per cent of Britain’s economic output.
The construction purchasing managers’ index (PMI) hit a 17-month high of 56, up from 53.1 in April and well above forecasts of 52.6. A reading above 50 means expansion.
This followed a “sharp and accelerated” rise in residential work from a seven-month low in March, with companies reporting a strong pipeline of new development projects and healthy underlying demand.
There were also solid rises in civil engineering and commercial building.
IHS Markit senior economist Tim Moore said: “A sustained rebound in residential building provides an encouraging sign that the recent soft patch for property values has not deterred new housing supply.
“Instead, strong labour market conditions, resilient demand and ultralow mortgage rates appear to have helped boost work on residential development projects in May.”
Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said the data suggests “that the referendum’s dampening influence on construction activity is fading”.
Duncan Brock, of the Chartered Institute of Procurement and Supply, warned a rapid upturn in production is putting “considerable pressure” on construction supply chains, with a growing shortage of contractors to complete work.
The faster-than-expected acceleration in building activity followed a similarly upbeat PMI survey of manufacturing earlier this week.