Sector - Commercial

Construction output sees strong rise

Construction output has gained momentum amid the strongest rise in new orders since April 2022.

May PMI® data signalled good news for construction firms with an upturn in overall UK construction output.

Commercial building and civil engineering activity led the rise with strong performances. Meanwhile, house building remained by far the weakest-performing category of activity, with output declining at the steepest pace for three years.

The headline seasonally adjusted S&P Global / CIPS UK Construction Purchasing Managers’ Index® (PMI®) registered 51.6 in May, up from 51.1 in April and above the neutral 50.0 mark for the fourth successive month.

The easing of inflation and supply conditions helped normalise conditions in May. Survey respondents suggested that concerns about the UK economic outlook and the impact of rising interest rates were the main factors holding back growth projections in May.

Worries about the impact of higher interest rates and subdued market conditions continued to dampen housing activity. Work on residential building projects decreased for the sixth month running and at the steepest pace since May 2020.

There were again divergent trends across the three main categories of construction activity. Commercial building index (at 54.2) was the best-performing segment, with output rising at a robust and accelerated pace. Construction companies cited a gradual turnaround in confidence among clients and faster decision-making on new projects. Civil engineering also gained momentum (index at 53.9), with growth hitting an 11-month high in May.

Total new business meanwhile increased at a strong pace in May, despite weakness in the house building sector. The overall rise in construction order books was the strongest recorded since April 2022.

Finally, construction companies remain upbeat about their growth prospects for the year ahead. Around 45% of the survey panel expect an increase in output levels, while only 14% predict a decline. That said, the degree of positive sentiment slipped to a four-month low in May.

Tim Moore, Economics Director at S&P Global Market Intelligence, which compiles the survey said: “May data highlighted 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.

“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.

“Inflationary pressures meanwhile eased considerably 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.”

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