After 17 months of unrelenting torment, it looks like the UK construction sector is finally a step closer to recovery as the July CIPS/Markit Purchasing Managers’ Index highlighted the slowest pace of decline since March last year (see index).

This progress is largely on the back of an improvement in the volumes of new orders placed. Though still declining, its rate of retrenchment was the slowest seen since last February. As we see demand for construction activity re-emerge, optimism in future sector performance also grew.

Collectively, this suggests the upturn is much closer than it seemed just a few months ago. Nonetheless, times are still very tough and many firms continue to battle against steep competition and a lack of available credit. Not only has the sector endured its seventeenth month of decline, but this has arguably been one of the deepest and most savage downturns endured since the end of the Second World War. So however positive things seem, it will take time before we see a full recovery.Though a lagging indicator, it is telling that firms are still shedding staff in a bid to keep their overheads under wraps. Though the rate at which firms cut jobs eased in July, a quarter of contractors admitted to axing staff in July.

What’s more, after showing recent signs of improvement, residential construction has retracted significantly and is still the poorest performing sub-sector. The market will need to improve substantially before we see the volume of new builds return to pre credit crunch level. As access to credit and employment levels remain low, this is unlikely to happen soon.

Though it’s clear the UK construction sector is about to reach a crucial turning point towards recovery, even when reached, its landscape will be forever changed.

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