Construction activity rises at fastest rate for nine months, PMI reveals

Construction activity in February rises at fastest rate for nine months, PMI reveals.

There has been a robust increase in overall business activity across the UK construction sector, according to February’s PMI survey results.

The rate of growth was the strongest since May 2022, thus ending a two-month period of decline, supported by a marked rebound in commercial work and a positive contribution from civil engineering activity. In contrast, housing activity has fallen for the third month running.

The survey also pointed to the least widespread supplier delays since January 2020 and a slowdown in input cost inflation. The overall rate of purchase price inflation was the lowest for 27 months in February.

The headline seasonally adjusted S&P Global/CIPS UK Construction Purchasing Managers’ Index (PMI), which measures month-on-month changes in total industry activity, registered 54.6 in February, up from 48.4 in January and above the neutral 50.0 threshold for the first time in three months. The latest reading was the highest since May 2022.

Commercial construction was the best-performing area in February (index at 55.3), with the rate of expansion the steepest for nine months. Civil engineering activity also returned to growth in February (index at 52.3), although the rate of expansion was only modest.

February also saw the third consecutive month of a drop in residential building work, however, the speed of the downturn has eased since January. Survey respondents commented on subdued market conditions due to elevated interest rates, alongside cutbacks to new house building projects in anticipation of weaker demand.

Construction companies reported signs of a turnaround in demand for commercial projects due to the improving near-term economic outlook.

Despite rising demand for construction products and materials, the latest survey indicated that supply pressures continued to ease. The respective index signalled that delays with vendor delivery times were the least widespread for just over three years.

Input price inflation across the construction sector was brought down by a better alignment of demand and supply. The latest round of purchase price increases was the slowest since November 2020. Higher input costs were mostly linked to suppliers passing on rising energy bills and salary inflation, although this was offset by transportation bills.

Business expectations for the year ahead improved further from the 31-month low seen in December 2022. Around 46% of the survey panel anticipate a rise in construction activity over the year ahead, while only 13% predict a decline.

The data has also revealed a modest increase in employment numbers across the construction sector, however, efforts to cut costs continued to hold back staff recruitment.

Tim Moore, economics director at S&P Global Market Intelligence, which compiles the survey, said: "Some firms noted that fading recession fears and an improving global economic outlook had boosted client confidence in the commercial segment. At the same time, work on major infrastructure projects such as HS2 contributed to the expansion of civil engineering activity in February. 

"Cutbacks to new house building projects remained the weak spot for construction sector activity, with total residential work falling for the third month running in February. 

"Construction companies appear increasingly confident about the year ahead business outlook, with optimism rebounding strongly from the lows seen in the final quarter of 2022." 

Dr John Glen, chief economist at the Chartered Institute of Procurement & Supply, said: "Supply deliveries were at their most improved since January 2020 and some commentators mentioned sourcing closer to home to avoid logjams in supply chains caused by China’s Covid policy and the war in Ukraine. 

"Commercial and civil engineering projects dominated this performance with activity on projects such as HS2 and commercial builds. Residential building on the other hand was the odd one out with a third month in contraction as mortgages rates put a dampener on the number of house purchases and buyers were unwilling to commit. 

"Builders themselves remained cheerful as optimism rose sharply and almost half of the survey’s respondents believed business would improve in 2023.”

Mark Robinson, group chief executive at SCAPE, said: “While it’s encouraging to see construction activity pick up again after a sharp decrease in January, unpredictable new business pipelines remain an operational challenge for firms to manage effectively. 

“Recent news that government departments collectively spent £24bn less than forecasted might raise hopes of a last-minute public sector spending spree by the chancellor in next week’s Budget. However, it’s more likely that delivering real-term cost savings is going to be the mandate for local authorities, and contractors will play an important role in helping them to achieve this.”

Max Jones, director in Lloyds Bank’s infrastructure and construction team, said: “Despite an uncertain economic picture, many in the industry feel confident. Payment times are proving resilient across supply chains, pipelines on infrastructure and commercial projects are holding up well and inflation, for materials and labour, looks to have passed its peak. 

“The industry will be closely monitoring this month’s Budget. While few expect the chancellor to pull any rabbits out of his hat, clarity around future projects, particularly in the regions, will give contractors the confidence they need to plan and invest in the future.”

PMI data was collected between 10-27 February 2023.

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