Construction growth returns

Following six months of contraction, the UK construction industry returned to growth in March, according to the latest purchasing managers survey from the Chartered Institute of Procurement and Supply and S&P Global.

The latest index for construction rose to 50.2 in March from 49.7 in the previous month, above the 50-point threshold that indicates growth for the first time since August. It was driven by an increase in civil engineering and housebuilding work.

Tim Moore, Economics Director at S&P Global Market Intelligence, which compiles the survey said:
“UK construction output returned to growth in March as a renewed expansion of civil engineering work was
supported by more stable conditions in the housing and commercial building segments. The marginal overall rise
in total construction activity ended a six-month period of contraction. The near-term outlook for construction workloads appears increasingly favourable as order books improved again in March and to the greatest extent for just under one year. Construction companies generally commented on a broadbased rebound in tender opportunities, helped by easing borrowing costs and signs that UK economic conditions have started to recover in the first quarter of 2024.”

Civil engineering was the best-performing segment in March, as output levels increased at a marginal pace. Panel
members cited increased work on infrastructure projects and resilient demand in the energy sector. House building and commercial construction activity were both broadly unchanged in March, meaning the stablisation of residential work represented the best performance for this category since November 2022.

Despite greater confidence in future trading conditions among construction companies, employment activity remains depressed in the sector. The PMI survey noted that hiring had fallen for the third month in a row in March. Businesses’ operating costs rose for a third month running, although the rate of increase was the slowest recorded over this period. Construction firms are grappling with higher raw material and labour costs.

Moore said: “The near-term outlook for construction workloads appears increasingly favourable as order books improved again in March and to the greatest extent for just under one year. Construction companies generally commented on a broad-based rebound in tender opportunities, helped by easing borrowing costs and signs that UK economic conditions have started to recover in the first quarter of 2024.”

While the PMI figure was stronger than expected, shares in Britain’s largest homebuilders struggled amid a wider market sell-off caused by concerns about whether central banks will deliver on expectations for several rate cuts this year. Shares in Berkeley Group, Persimmon and Taylor Wimpey, all in the FTSE 100 index, fell by more than 1 per cent today in a market further unsettled by tensions in the Middle East.