Activity in the construction sector hit a three year high in March, with the overall construction index (PMI) rising to 58.9, up from 57.3 in February. This is the highest reading since December 2003.

Capital Economics believes that the index suggests that still-solid activity levels in the wider economy continue to provide support for the construction sector.

“At the sector level, the data reveals that a sharp rise in activity in the housing sector was responsible for the latest rise in aggregate construction activity”, said Ed Stansfield, property economist for Capital Economics. “Housing activity rose from 53.3 in February to 56.1 in March, more or less reversing the falls seen in the previous two months.”

Activity levels in both the commercial construction sector and the civil engineering sector were broadly unchanged from February’s level. “Historically, activity levels in the commercial construction sector have provided a reasonable cross check on the plausibility of all-property rental growth forecasts up to six months ahead”, said Stansfield. “The latest data continues to suggest that our end-year forecasts for rental growth of around 4% remain on track.”