Construction sector rebounds as outlook strengthens

by | Mar 6, 2023

Business activity in the UK construction sector jumped last month, a closely-watched survey showed on Monday, beating expectations.
The S&P Global CIPS UK Construction PMI came in at 54.6 in February, up significantly on January’s 48.4 and well above analyst forecasts for 48.6.

The highest since May 2022, it was the first time the index had risen above the neutral 50 point in three months. A reading below 50 indicates contraction, while one above that suggests growth.

Driving the growth was a rebound in commercial work – with a reading of 55.3 – as well as a positive contribution from civil engineering, at 52.3.

Respondents said the improving near-term economic outlook had helped boost orders for commercial projects, while input cost inflation had fallen to its lowest level since November 2020.

However, the housing sector continued to struggle, with activity remaining under 50 for the third month running, at 47.4. Respondents said higher interest rates were weighing on the market, and reported new house building projects being cut back in anticipation of weaker demand.

Tim Moore, economics director at S&P Global Market Intelligence, said: “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.”

John Glen, chief economist at the Chartered Institute of Procurement & Supply, said: “The overall figure paints a bright picture of progress in the construction sector, with a robust jump in output.

“Supply deliveries were at the their most improved since January 2020, and some commentators mentioned sourcing close to home to avoid logjams in supply chains caused by China’s [zero] Covid policy and the war in Ukraine.”

Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said: “A revival in business confidence, enabled by easing input costs and a less severe increase in the bank rate than many firms had feared in the fourth quarter, drove an upturn in construction work in February.

“Nonetheless, the housing activity index rose merely to 47.4 from 44.8 in January. We continue to expect housing construction to fall over the next six months, as the recent weakness in mortgage approvals ripples back up the supply chain.

“Accordingly, we continue to think that overall construction output will trend down over the course of 2023.”

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