PMI shows optimism at two-year high
Construction business optimism is at a two-year high according to the latest PMI survey.
UK construction companies indicated a strong improvement in business activity expectations in January, despite an ongoing decline in current output levels and a marginal fall in incoming new work.
Despite subdued order books the latest data signalled a sharp upturn in business activity expectations. Around 51% of the survey panel forecast a rise in business activity during the year ahead, while only 12% predict a decline. This pointed to the highest level of business optimism since January 2022.
The headline S&P Global UK Construction Purchasing Managers’ Index™ (PMI®) registered 48.8 in January, up from 46.8 in December and the highest reading since August 2023. The latest figure is below the crucial 50.0 no-change threshold for the fifth month running, signalling a moderate decline in total industry activity.
Civil engineering was the best-performing segment in January (index at 49.8), with output levels close to stabilisation. Commercial activity also rallied, with just a marginal decline at 49.1.
Meanwhile, house building continued to fall sharply at the start of 2024, registering at 44.2. Survey respondents noted subdued demand conditions and a lack of work to replace completed projects.
January data indicated a reduction in total new work for the sixth consecutive month, but the pace of decline was only marginal and the weakest seen over this period.
Lower borrowing costs and higher consumer confidence were cited as factors likely to boost construction activity over the course of 2024.
Demand for construction inputs softened for the fifth consecutive month in January, with survey respondents commenting on weak demand and ongoing efforts to minimise inventory holdings. Meanwhile, suppliers’ lead times shortened again as an improved balance between demand and supply helped to reduce delivery delays.
Tim Moore, Economics Director at S&P Global Market Intelligence, which compiles the survey said: “UK construction companies seem increasingly optimistic that the worst could be behind them soon as recession risks fade and interest rate cuts appear close on the horizon. The prospect of looser financial conditions and an improving economic backdrop meant that business activity expectations strengthened to the highest for two years in January. Moreover, there were again signs that customer demand is close to turning a corner as total new orders fell to the smallest extent for six months.
“Relatively subdued pipelines of new work nonetheless resulted in lower levels of construction output for a fifth successive month in January. House building remained by far the weakest-performing category, despite the rate of decline easing to its slowest since March 2023.
“Meanwhile, higher prices paid for imported items contributed to a rise in overall cost burdens for the first time since last September. However, there were still signs of space capacity across the construction supply chain as vendor delivery times shortened again at the start of 2024 and sub-contractor availability increased at a robust pace.”
Michael Wynne, director of the sustainable housebuilder Q New Homes, commented: “The headline sentiment figures are very welcome but they still owe more to hope than housebuilding.
“Residential property developers, who typically look ahead 18 to 24 months in their business planning, still face high material, labour and borrowing costs, and only the leanest and best integrated are able to commit to a full pipeline of projects.
“Nevertheless there is a growing sense that the worst might be past, and this is lifting sentiment.
“Election years tend to bring uncertainty and this has traditionally throttled back demand, but 2024 comes after an extended period of stagnation – and while the economic backdrop is far from rosy, cheaper mortgages and the release of pent-up buyer demand should give housebuilders a shot in the arm over the coming months.”
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