UK House Building Surges Further Amid Housing Market Recovery

There was "another surge" in house building during May as UK construction firms react to the ever-weakening housing supply.

That is according to a monthly report by Markit compiled from surveys of construction sector purchasing managers.

Though output growth slowed slightly in the month, the purchasing managers index (PMI) came in at 60. This is well above the neutral 50 mark represents a rapid pace of growth.

Construction output is still around 10% below its pre-financial crisis peak. It suffered a marked collapse as activity in the property market evaporated and public sector contracts dried up amid the government's austerity programme.

A revival in the mortgage market as the Bank of England holds down interest rates and the UK's economy recovers is driving up house prices. Nationwide said the average price of a UK home hit £186,512 in May, a rise of 11.1% over the year.

As a result, construction firms are chasing profits from higher property prices by increasing their residential housing work.

"Output growth hit a seven-month low in May, but the UK construction sector is enjoying its strongest overall phase of expansion since the summer of 2007," said Tim Moore, senior economist at Markit.

"Residential building remains a key engine of growth, with survey respondents citing another surge in new house building starts during May."

He added that the survey also reveals the longest period of job creation in the construction sector for six years.

There are concerns about the supply of materials and labour, both of which there is a shortage of.

The supply side of the construction sector suffered badly after the financial crisis. It cannot recover the lost capacity as quickly as output is expanding at construction firms, driving up costs.