‘Mixed picture’ for construction, despite strongest upturn in activity since February

The latest PMI survey shows the sector has enjoyed the strongest upturn in total construction activity since February, despite only a modest growth in the PMI index of 0.5.

The steepest falls for housebuilding since April 2009, barring the 2020 downturn experienced at the start of the pandemic, kept the sector’s growth rate at only a modest figure, despite a commercial building index of 54.2 and gains in civil engineering taking the index to 53.9. 

At an overall 51.6 in May, the headline seasonally adjusted S&P Global/CIPS UK Construction Purchasing Managers’ Index® (PMI®) – which measures month-on-month changes in total industry activity – was up slightly from 51.1 in April and above the neutral 50.0 value for the fourth month in a row. 

Faster rises in commercial building and civil engineering activity contributed to the growth in activity, with total new business increasing the most it has done since April 2022, despite continued weakness in the house building sector and fears over further interest rate rises.

Work on residential building projects decreased for the sixth month running and at the steepest pace since May 2020. 

Aside from the pandemic-related downturn, the latest reading for this category of construction activity (42.7) was the lowest for just over 14 years.

Tim Moore, Economics Director at S&P Global Market Intelligence, which compiles the survey said:  the May data represented a “mixed picture” across the UK construction sector, as solid growth rates in commercial and civil engineering activity contrasted with a steeper downturn in house building. 

“Rising demand among corporate clients and contract awards on infrastructure projects meanwhile underpinned the fastest rise in new orders since April 2022,” he said.

"However, cutbacks to new residential building projects in response to rising interest rates and subdued housing market conditions resulted in the sharpest drop in housing activity for three years. 

“This meant that residential work underperformed the rest of the construction sector by the greatest margin since October 2008. 

“Survey respondents also commented on concerns about the broader UK economic outlook, which contributed to an overall drop in output growth projections to the lowest for four months.”

He added inflationary pressures “eased considerably” in May, with purchase prices increasing to the smallest extent since September 2020. 

“Supply chain normalisation helped to moderate cost inflation, as signalled by the strongest improvement in delivery times for construction products and materials for almost 14 years," he added.

Dr John Glen, Chief Economist at the Chartered Institute of Procurement & Supply (CIPS), said the steepest drop in housing activity since April 2009, barring the initial pandemic lockdown in early 2020, would send “a chill down the spine of the UK economy”.

It comes despite the overall output in the construction sector showing an improvement for the fourth month in a row. 

"The residential sub-sector is closely linked to consumer confidence and levels of spending,” he said, also cautioning that a further hike in interest rates is expected this month. 

“Along with the relentless increase in the cost of living [this] is making buyers hesitate about purchasing homes,” he said. 

“As a result, builder confidence was pinched to remain below the survey average, as business costs remained high and firms expanded their workforce numbers at only a modest pace as they were cautious about their own affordability rates. 

"Even with the strongest increase in new orders for just over a year, where commercial and civil engineering projects made up the shortfall, purchasing activity remained flat. 

“Companies were de-stocking their built-up supplies because, with the fastest turnaround in supplier delivery times since August 2009, builders expected that demands for materials would be met should a long-awaited sustainable upturn ever arrive."

The S&P Global / CIPS UK Construction PMI® is compiled by S&P Global from responses to questionnaires sent to a panel of around 150 construction companies.