Activity in the construction sector rose for the 11th month in a row in July and the rate of expansion in output and new orders was the highest in three months.

The latest Ulster Bank purchasing managers index, a gauge of activity and sentiment in the sector, benefited from a surge in housing construction.

The index, which covers the housing, commercial and civil engineering sectors, rose to 62.6 in July from 59.9 the previous month.

Ulster Bank said that strong growth was seen in the housing and commercial sectors. It noted that the rate of expansion in activity on residential projects was the sharpest in the history of the index, which began in 2000.

Although civil engineering activity continued to decline, the rate of contraction was marginal and the slowest in the current sequence of decline.

The construction sector also saw a rise in employment levels - the 11th increase in as many months and the strongest in three months. Ulster Bank noted that the use of sub-contractors rose at the fastest level since 2006.

Optimism among building firms improved for the second month in a row in July, as more enquiries from people encouraged firms to predict further increases in activity over the rest of the year.

Ulster Bank economist Simon Barry said that levels of residential building still remain very low following the crash but that the rate of expansion in July was the fastest in that segment of the construction industry for 15 years.

"The evidence provided by the PMI - and indeed other data sources, including Department of Environment figures on house completions - indicates that housing activity trends are clearly on an improving trajectory," the economist said.

"Also offering considerable encouragement was the strength of new business flows reported by respondents last month. The rate of growth of new orders picked up markedly to the strongest since November 2004, thus providing a solid basis for expecting that overall activity levels should continue to expand solidly in the months ahead," he added.

66% increase in project commencements

Meanwhile, a separate index specifically measuring home building activity notes that the number of commencement notices is up 66% over the first half of this year compared to the same period last year.

Commencement notices are filed with local authorities just before building work starts on a site.

The National Housing Construction Index, compiled by Link2Plans, shows that the biggest increases in project commencements were in Westmeath (up 189%), Monaghan (up 138%) and Sligo (up 114%).

The lowest level of commencements were seen in Cavan (17%), Wicklow (19%) and Louth (19%), while Roscommon saw no commencement notices at all.

The index also reveals that the number of planning applications rose by 19% in the first six months of this year compared to the same time last year.

Dublin was the best performing area in this regard with applications up 63%. Other counties which recorded substantial increases in the number of planning applications were Waterford (59%), Wicklow (46%) and Meath (40%).

The largest falls in were reported in Leitrim (down 37%), Laois (down 16%) and Donegal (down 16%).

"The year on year increases for planning applications and project commencements bodes well for the construction sector in the short to medium term," stated Danny O’Shea, managing director of Link2Plans.

"The +66% year on year increase in project commencements is incredibly positive, notwithstanding the slowdown in the rate of growth in project commencements since the start of the year," he added.