UK construction sector slows amid soaring prices and economic uncertainty

·Business Reporter, Yahoo Finance UK
·3 min read
UK construction firms cited pent up demand for commercial projects and spending related to COVID-19 recovery plans. Photo: Finnbarr Webster/Getty
UK construction firms cited pent up demand for commercial projects and spending related to COVID-19 recovery plans. Photo: Finnbarr Webster/Getty

The UK construction sector saw the slowest growth in new orders so far this year as rising costs and economic uncertainty dampened demand.

According to the latest data from S&P Global, the construction purchasing managers’ index (PMI), which measures month-on-month changes in total industry activity, came in at 58.2 in April, down from 59.1 in March.

While any reading above 50 marks an expansion, it was the weakest rate of output growth since January.

Of the three main construction segments monitored by the survey, the fastest-growing remained commercial work, coming in at 60.5. This was followed by civil engineering at 56.2.

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Construction firms cited pent up demand for commercial projects and spending related to COVID-19 recovery plans. Meanwhile, major infrastructure schemes such as HS2 were reported as factors helping to boost civil engineering activity.

Residential work remained the worst-performing sub-sector during the month, and saw the greatest loss of momentum at 53.8 compared to 54.9 in March.

Signs of a slowdown in client spending contributed to another drop in growth expectations, with optimism about future workloads being the lowest since September 2020.

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Rising raw material prices, hesitancy due to higher borrowing costs, and geopolitical uncertainty were reported as the most common challenges to demand. Around 45% of the survey panel also reported longer lead times, while only 2% noted an improvement.

S&P also revealed on Friday that the rate of employment growth hit a three-month high. However, there were still supply chain delays due to staff shortages, and unavailable materials and transport. This was made more difficult thanks to delays at ports and the war in Ukraine.

Looking ahead, the percentage of construction companies forecasting an upturn in business activity during the next 12 months (43%) continued to surpass those expecting a fall (12%).

The gap narrowed again in April, however, and as a result the Future Activity Index dropped to a 19-month low.

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"The construction sector is moving towards a more subdued recovery phase as sharply rising energy and raw material costs hit client budgets,” Tim Moore, economics director at S&P Global, said.

“Construction companies have built up strong order books since the reopening of the UK economy, which led to another round of rising employment in April and these project starts should keep the sector in expansion mode during the remainder of the second quarter.

"However, tender opportunities were less plentiful in April as rising inflation and higher borrowing costs started to bite. Consequently, longer-term growth projections have slumped from January's peak, with business optimism now the weakest since September 2020."

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