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Construction Sector Bouncing Back as Inflation Fears Ease

  • The construction sector in the UK continues to recover, with activity reaching its highest level in two years.
  • All three subsectors of construction – residential, commercial, and civil engineering – registered expansions for the first time since May 2022.
  • Construction firms are anticipating further increases in new orders and plan to increase employment and purchasing activity in the coming months.
Construction Sector

The ongoing recovery in the construction sector continued in May, a new survey showed, as an upturn in commercial property helped push activity to its highest level in two years.

S&P’s purchasing managers’ index (PMI) for the construction sector rose to 54.7 in May, up from 53.0 in April. Anything above 50 indicates growth.

All three subsectors – residential, commercial and civil engineering – registered expansions for the first time since May 2022 after housebuilding returned to a expansion for the first time since October 2022.

Commercial activity led the way, accelerating to a two-year high while civil engineering rose at a “solid pace”, albeit softer than last month. Growth in housebuilding was still “only marginal”.

The latest increase in construction reflected sustained growth of new orders, the survey said. New business rose for the fourth consecutive month, and at a solid pace that was the fastest for a year thanks to improving demand.

This also encouraged construction firms to take on more staff. Although only modest, the pace of job creation was the sharpest since last September.

Construction firms have suffered from higher borrowing costs as a result of the Bank of England’s interest rate hikes. The benchmark Bank Rate currently stands at a post-financial crisis high of 5.25 percent, although it is expected to start coming down in a matter of months.

“As interest rates fall back over the second half of the year that will give construction activity a further boost,” Matthew Pointon, senior commercial real estate economist said.

The survey showed firms anticipated further increases in new orders to support construction growth over the next 12 months.

“The UK construction sector looks to be building good momentum as we approach the middle of 2024, highlighted by activity increasing at the fastest pace in two years during May,” Andrew Harker, economics director at S&P Global Market Intelligence, said.

“Firms are gearing up for further growth in the months ahead, posting renewed expansions in both employment and purchasing activity as workloads increase,” he added.

Construction firms only reported a “marginal increase” in input costs during May, falling to its lowest level in five months. This was due to improving supply-chain conditions.

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