Signs of a turnaround in the UK construction industry…

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Construction activity is continuing to grow in the UK. That’s according to the April S&P Global / CIPS UK Construction Purchasing Managers’ Index® (PMI), as reported by PCBToday, a Construction, Planning and Building Control portal.

Construction companies in the UK the survey shows continue to experience an increase in construction activity. Although the PMI survey shows that this expansion is unevenly distributed across the sector, there are definite signs of growth, the early green shoots of a recovery, but housebuilding is still depressed.

The supply problems post-Brexit and post-Covid in the building materials market are beginning to ease with building materials supplies reaching their highest level since September 2009. Prices have stabilised as building materials have become more readily available, and the transportation bottlenecks and delays have eased. The materials price inflation brought about by the Brexit / Covid shocks has reduced to its lowest level in the last two-and-a-half years.

The monthly releases for the S&P Global / CIPS UK Construction Purchasing Managers’ Index® (PMI®) provide an insight into construction production and the performance of the sector. The index is ‘based on data compiled from monthly replies to questionnaires sent to purchasing executives in over 170 construction companies’.

The importance of PMI indicators

Construction activity indicators provide critical insights into the health of the broader economy, as an increased level of this activity gives an early sign of recovery, it plays such a key role in showing how the overall economy is performing perform.

Construction figures include residential, commercial, and industrial construction. Commercial and industrial building activity includes the construction of hotels, office buildings, schools, hospitals, and other institutional buildings. Residential activity includes new housing single family homes as well as multi-home buildings such as apartments and flats.

Construction spending accounts for around 5 per cent of the overall UK economy in any given year, as measured by gross domestic product (GDP). When businesses are investing in new construction, it typically indicates that economic growth is building and on the road to recovery. The converse is true of course and weak construction activity is troubling news for the economy.

These construction activity indicators are based on statistics gathered through monitoring hard data as building approvals, construction progress over a given period, overall construction spending, the state of the construction workers employment market, and even the number of buildings being demolished. All of these data points can give insights into the direction of the economy, though one month’s data has to be viewed with caution, until a definite trend can be established.

Construction Statistics

In the case of UK construction, a PMI score of 50 represents the neutral line, neither increasing or decreasing. Anything higher indicates growth, while lower indicates weakness. The latest figure for April showed a slight increase from 50.7 in March to 51.1 in April. This will be the third month in a row that the figure has remained above 50 and growing, which would indicate the beginning of a positive trend.

According to PCBToday, construction activity has soared in the commercial sector with commercial building expanding the most with an index score of 53.9. This has been achieved despite survey respondents reporting headwinds in growth from tighter client budgets and higher cost-inflation.

The April figures also show positive growth in civil engineering and construction projects with an index score of 52.0, supported by ongoing and durable pipelines of large Government backed infrastructure projects.

Housebuilding is the problem child

The April PMI figures show that, as expected, weakest performing part of the construction industry is housebuilding with an index low of 43.0 Respondents in this sector put this down to a reduction in demand for private housing due to increased mortgage rates resulting in new building projects being put on hold.

Removal of house-building targets

The controversial move by Rishi Sunak, after admitting that the Government scrapped national housebuilding targets because Tory members do not approve of them has exacerbated the home building decline, and has led to fears that the decision puts at risk the Tory’s manifesto pledge to build 300,000 new homes a year.

The rate of decline in total residential work was the largest in almost three years says PCBToday. The April survey respondents said that “delays in new house-building projects and a reduction in demand due to softer market conditions and increased borrowing costs contributed to this decline.”

The growth in new work in the commercial sector was linked to robust demand from clients, particularly for new commercial building projects. Employment rates in commercial construction rose moderately, but input buying only expanded slightly.

Supply chain improvements are continuing with suppliers’ lead times now reduced to their highest extent in just over thirteen-and-a-half years says PCBToday. This improved supply and reduced demand have together reduced cost pressures throughout the construction industry. The purchase price inflation rate was reported as the lowest since November 2020.

Construction firms are optimistic about a rise in business activity for the upcoming year, although confidence levels decreased to a three-month low. Around 44% of the survey participants predict an increase in output over the next year, while only 13% expect a decline.

Rising construction activity has brought cautious optimism

Respondents to the survey expressed optimism concerning the robust demand from clients. However, some companies raised concerns regarding the sluggish housing market activity, increasing interest rates, and the uncertain economic outlook.

“After a difficult start to the year in January, it’s positive to see the sector continuing to bounce back with a sustained period of growth. While the sector as a whole may not be firing on all cylinders, reports of both commercial work and civil engineering expanding demonstrate the greater confidence found in the market. Avoiding a recession and the continued easing of both cost and supply pressures have undoubtedly been key drivers in boosting activity,” said Fraser Johns, Beard finance director.

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