11 APR 2023


March saw the fastest decline in housing activity since May 2020 despite a marginal rise in total construction output, the latest PMI survey reports. 

The survey showed civil engineering to be the best performing category with the fastest rise in business activity during another rise in UK construction output, helped by a moderate increase in new orders. 

However, house building was the weakest-performing area, with lower volumes of residential building work now recorded for four months in a row. 

Tim Moore, economics director at S&P Global Market Intelligence, which compiles the survey, said this was the “main area of concern” in March - but added lots for the sector to be positive about. 

"UK construction companies experienced a sustained rebound in output levels during March as work on civil engineering and commercial projects picked up for the second month running,” said Moore.

“Improved tender opportunities were also reflected in an upturn in new orders since February and the strongest rate of job creation for five months. 

"A sharp and accelerated decline in house building was the main area of concern in March. Cutbacks to new residential projects in the wake of subdued demand and rising interest rates contributed to the sharpest fall in housing activity across the construction sector for almost three years.”

He added despite worries about the near-term outlook for housing activity, expectations for total construction output during the year ahead were “relatively upbeat” in March. 

Supply conditions improved in March, reflecting greater availability of construction products and materials, alongside fewer logistics bottlenecks. 

The overall improvement in vendor performance was the strongest since November 2009.

At 50.7 in March, the headline seasonally adjusted S&P Global / CIPS UK Construction Purchasing Managers’ Index® (PMI®) – which measures month-on-month changes in total industry activity – was down from 54.6 in February but above the 50.0 no-change threshold for the second month running.

The latest reading signalled a marginal overall increase in total construction output.

Civil engineering activity stood at 52.0.

“Growth projections were boosted by the fastest improvement in suppliers' delivery times for more than a decade,” said Moore. 

“Survey respondents often cited improved availability of construction inputs and subsequent hopes that purchasing price inflation would moderate in the months ahead."

Dr John Glen, Chief Economist at the Chartered Institute of Procurement & Supply, said strong inflationary pressures and concerns over consumer affordability remained obstacles for the sector.

Housing activity (index at 44.2) decreased at a sharp and accelerated pace in March, with survey respondents often citing fewer tender opportunities due to rising borrowing costs and a subsequent slowdown in new house building projects.

However, Glen said the small uplift in construction activity in March showed the sector was “heading in the right direction and at a stabilising pace”.

The latest survey also signalled an increase in commercial building work (index at 51.1), although the rate of expansion eased from February's nine-month high. 

Glen cited a “few uplifting surprises along the way” included delivery times from suppliers improving at the fastest rate since November 2009, with goods getting through more quickly. 

“Builders were also riding high with the highest levels of optimism since February 2022 and there was an uplift in hiring levels to maintain momentum,” he added. 

"With residential building still struggling and falling at the fastest rate since May 2020, it was the bigger projects like HS2 managed by the civil engineering sector that added fuel to the engine of construction growth this month."

Despite subdued housing market conditions, latest data signalled a further increase in total new work received by construction companies.

The latest rise was the second fastest since July 2022 and greater workloads led to a solid upturn in staff recruitment, with the rate of job creation accelerating to its fastest since last October.

However, some construction firms pointed to elevated wage pressures as a constraint on hiring.

About 46% of the survey panel predicted an increase in business activity during they year ahead, while only 11% said they could see a reduction.

This signalled the strongest degree of positive sentiment since February 2022.


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