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However, the orders, tender enquiries, tender prices and employment indices were all down in July compared with June, although order levels remained high. This is likely to result in a slackening of the activity index over the next few months.

Fifty-three per cent of firms identified a constraint on activity in July. The main constraints were labour shortages (21%) and insufficient demand (19%). Firms continue to face pressures from rising labour costs, although annual rises have eased marginally since April for building and civil engineering firms.

Industry growth is expected to slow over the next three months, according to CFR's Leading Construction Activity Indicator. The indicator is set to fall from 56 in August to 53 in November, as recent falls in orders and tender enquiries feed through to activity levels.

According to the Department of Trade and Industry's latest data, construction output in Britain increased by 6.6% in the second quarter of 2003 compared with the same period a year earlier and was up 5.3% relative to the previous quarter.

Construction activity picked up slightly in July, with the activity index for all firms rising by one point to 57. The smoothed activity index, which looks at the trend in activity over the past three months, saw its second consecutive monthly improvement, to 57.

The proportion of firms reporting constraints on activity levels rose marginally in July to 53%, compared with 52% in June. This seems to be largely due to a steadily increasing share of respondents identifying labour shortages as a constraint, up another percentage point to 21% in July. Insufficient demand remains a difficulty for 19% of firms.