The construction industry is experiencing a surge in momentum, with the most significant increase in new orders since April 2022. The latest PMI® data reveals a positive trend for construction companies, as the overall UK construction output is on the rise.
The growth is primarily driven by the commercial building and civil engineering sectors, both of which have shown impressive performance. However, the housing sector lags behind, with the steepest decline in output in three years.
The S&P Global / CIPS UK Construction Purchasing Managers’ Index® (PMI®) for May registered at 51.6, a slight increase from April’s 51.1, marking the fourth consecutive month above the neutral 50.0 mark.
The easing of inflation and improved supply conditions contributed to the normalisation of conditions in May. However, concerns about the UK’s economic outlook and the impact of rising interest rates were identified as the main factors constraining growth projections.
The housing sector continues to be affected by concerns over higher interest rates and subdued market conditions, leading to a decrease in residential building projects for the sixth consecutive month, the steepest decline since May 2020.
The three main categories of construction activity showed varied trends. The commercial building sector, with an index of 54.2, was the top performer, with output rising robustly. Construction companies reported a gradual increase in client confidence and quicker decision-making on new projects. Civil engineering also showed positive momentum, with the index at 53.9, marking an 11-month high in growth for May.
Despite the weakness in the housing sector, total new business increased significantly in May. The overall increase in construction orders was the highest since April 2022.
Looking ahead, construction companies remain optimistic about their growth prospects. Approximately 45% of the survey panel anticipate an increase in output levels, while only 14% foresee a decline. However, the level of positive sentiment dipped to a four-month low in May.
Tim Moore, Economics Director at S&P Global Market Intelligence, commented on the mixed trends in the UK construction sector. He noted the solid growth rates in commercial and civil engineering activity, contrasting with a sharper downturn in house building. He also highlighted the rising demand among corporate clients and contract awards on infrastructure projects as key drivers of the fastest rise in new orders since April 2022.
Moore also pointed out the significant drop in housing activity due to cutbacks in new residential building projects, a response to rising interest rates and subdued housing market conditions. This has resulted in the housing sector underperforming the rest of the construction industry by the largest margin since October 2008. He also noted concerns about the broader UK economic outlook, contributing to a decrease in output growth projections to a four-month low.
Inflationary pressures eased considerably in May, with purchase prices increasing to the smallest extent since September 2020. The normalisation of the supply chain helped moderate cost inflation, as indicated by the most significant improvement in delivery times for construction products and materials in nearly 14 years.