UK construction activity increased at the fastest pace in three months, driven by growth in the commercial sector that offset a sharp fall in housebuilding, according to a closely watched survey published on Tuesday.
The S&P Global/Cips construction purchasing managers’ index, which measures monthly changes in total industry activity, rose to 51.6 in May, up from 51.1 in April and above the neutral 50 mark for the fourth successive month.
The figure was higher than the 51.1 reading forecast by economists polled by Reuters and the best since February.
Martin Beck, chief economic adviser to the EY Item Club, a consultancy, said that alongside a final PMI of 55.2 for the services sector in May, published on Monday, the data meant it was “now looking more possible that gross domestic product will grow in Q2”.
He added that the readings also boosted the likelihood of a return to “meaningful [economic] growth in the second half of this year”.
The S&P Global/Cips survey said rising demand among corporate clients and contract awards on infrastructure projects underpinned the fastest rise in new construction orders since April 2022. Commercial building was the best-performing category, with a PMI sub-index of 54.2 in May, up from 53.9 in April.
Matthew Pointon, senior property economist at the consultancy Capital Economics, said the data suggested “developers think the worst of the capital value falls are now behind us and that demand is recovering”.
Civil engineering also gained momentum, with a reading of 53.9, indicating the fastest growth in almost 12 months. However, work on residential building projects fell for the six consecutive month and at the steepest pace since May 2020, as worries about the impact of higher interest rates continued to dampen housing demand.
Residential PMI housing’s index of 42.7 was the lowest in 14 years, excluding the height of the pandemic.
Tim Moore, economics director at S&P Global Market Intelligence, said the data for May “highlighted a mixed picture across the UK construction sector, as solid growth rates in commercial and civil engineering activity contrasted with a steeper downturn in housebuilding”.
The survey also showed a shortening of vendor lead time as supply disruptions eased. This helped alleviate cost pressures across the construction sector, with the overall rate of input price inflation declining to its weakest for almost three years.
Economists have warned, however, that the construction sector continues to face challenges from high borrowing costs and rising living costs. Markets expect the Bank of England’s Monetary Policy Committee to lift interest rates further when it next meets on June 22 — a move that Beck said would “weigh on residential and commercial activity”.
Source: Economy - ft.com
