UK construction sector growth slowed in May after hitting its highest level in almost three and a half years in April.

But it remained strong, supported by ongoing demand for housing, the Chartered Institute of Purchasing and Supply said.

The headline purchasing managers index fell to 58.0 in May from 59.8 in April, CIPS said. A reading above 50 indicates expansion.

The breakdown of the survey revealed that output and new orders growth dropped slightly, but input price inflation jumped to a nine-month high of 70.2.

"Purchasing managers largely attributed this slower rate of growth to input price inflation climbing to a nine-month high," said Roy Ayliffe, director of professional practice at CIPS. However, he noted that the overall level of activity remained "considerably strong", as housing demand stayed very buoyant.

"Growing demand for UK housing, coupled with a large number of successful bids for planning permission, helped push the overall construction performance. In turn, this has helped boost sector activity expectation levels for the next year," he said.

And that was confirmed by a report from accountants PricewaterhouseCoopers.

It found that six out of 10 engineering and construction industry chief executives were very confident about revenue growth over the next 12 months.

Around 50 bosses were interviewed for the 10th Annual Global CEO Survey, which addresses the key opportunities and challenges that companies in the sector are facing.

Confidence levels among the sector's CEOs remain strong in the longer term too, with nine out of 10 optimistic about revenue growth over the next three years. Only six per cent are not confident.

For the Midlands, the latest economic projections for the construction industry confirm that growth is expected to continue its upward trend - rising from around 1.6 per cent in 2006 to 2.5 per cent this year.

David Waller, Midlands' chairman of PwC, commented: "The Midlands is home to around 300 construction businesses, of which about 30 are recognised as industry giants. Collectively these companies contribute about a third of the UK's total construction sector output and are an important part of our regional economy.

"It is not surprising that levels of confidence among business leaders are high given that the industry is currently in a global construction boom. Construction activity has outstripped GDP growth over the past three years, driven particularly by the catch-up on under investment in infrastructure and housing at the start of the millennium. The sustained optimism in the sector is good news for our local economy."

CEOs in the engineering and construction industries view geographic expansion as the main opportunity to generate growth in their business. Internally generated cash flow will finance most of the projected growth, according to 81 per cent of respondents. The debt and equity markets will provide a source of funding but only 12 per cent of CEOs anticipate that private equity and venture capital will fuel growth.

Almost 80 per cent of engineering and construction respondents said they had engaged in cross-border M&A to gain access to new markets and customers.

According to the survey the most popular M&A hot spots for engineering and construction companies have been Western and Eastern Europe. Going forward, an overwhelming proportion of CEOs expect to find growth opportunities in Central and Eastern Europe and the Middle East.

Availability of skills was ranked as CEOs number one challenge - more than eight in ten raised this as a key concern. Other concerns included low cost competition, energy prices and commodity prices. One in three CEOs admitted concerns over global warming and climate change but only one in five had chosen to expend resources to address these.

Mr Waller said: "The worries over skills shortages are well founded. Construction companies in the Midlands are finding that resourcing contracts is the biggest challenge at the moment, rather than winning them.

This, coupled with building materials inflation averaging around six per cent per annum, suggests that it has never been more important to price projects effectively and capitalise on the strong market that exists. There are lots of opportunities to expand internationally, but the industry is right to proceed with caution."