UK construction rebound picks up pace but housebuilding slump persists

Companies reported increased demand from customers who were more confident about improving economic conditions

The UK’s construction industry is experiencing a rebound, with activity rising at the fastest rate in over a year, despite a persistent slump in housebuilding.

The S&P Global construction purchasing managers’ index (PMI) for April scored 53.0, up from 50.2 in March, marking the highest level since February of the previous year. This increase surpassed analysts’ expectations who had predicted a score of 50.4 for the month.

A reading above the 50.0 threshold indicates an increase in industry activity, while anything below signifies a contraction. Commercial and civil engineering work, including building offices, warehouses, and larger projects like railways, airports, and stadiums, was the main driver of growth in April, with new work increasing for the third consecutive month.

Companies reported increased demand from customers who were more confident about improving economic conditions. Civil engineering has consistently been the top-performing sub-sector, supporting the broader industry which has been dealing with a prolonged downturn.

Conversely, housebuilding has continually impacted activity negatively, with firms feeling the effects of higher interest rates leading to weaker demand in the property market. April saw the residential housebuilding sector’s downturn persist, with construction firms experiencing sluggish conditions due to high borrowing costs.

S&P Global Market Intelligence’s economics director Tim Moore commented: “The construction sector consolidated its recent return to growth in April, with total industry activity rising at the fastest pace for 14 months amid an ongoing recovery in order books.

He added: “Demand was boosted by greater confidence regarding the broader UK economic outlook. Lacklustre market conditions in the housebuilding segment continued to weigh on activity.”

As companies maintained a tight grip on their expenses, hiring rates slowed further last month. This coincided with the national minimum wage hike to £11.44 at the beginning of April, now including 21- and 22 year olds, ramping up wage pressures for UK businesses.

Surveyed companies reported improvements in supply conditions, with the shortest wait times for key materials seen so far in 2024, hinting at better shipping conditions following earlier disruptions in the Red Sea that increased costs for imported building materials.

Max Jones from Lloyds Bank’s infrastructure and construction team said: “Confidence among contractors is heading in the right direction as inflation moves to more manageable levels for the sector. Work in the regions is also providing reasons for optimism.”

“Investment is increasingly being directed to social infrastructure projects including schools, prisons and hospitals across the country, while there have also been increases in energy project developments such as offshore wind and hydrogen.”