Construction sector ‘turns a corner’ as housebuilding jumps
The UK’s construction sector has “turned a corner”, a closely watched survey suggests, helped by a marked recovery in residential housebuilding.
According to S&P’s PMI for the construction sector, the overall index stood at 53.6 in August. This put it above the 50 no-change mark for the fifth consecutive month although slightly below July’s 26-month high.
Tim Moore, economics director at S&P Global Market Intelligence, said the recovery in housebuilding was the “most notable development” in August.
Housebuilding activity picked up to its fastest pace since September 2022 with the acceleration driven by improving market conditions and lower borrowing costs.
Before last month, housebuilding had been in contraction for 19 out of the past 20 months due to the impact of high costs and sluggish demand.
However, the market has recovered in recent months. Figures out last week from the Bank of England showed that mortgage approvals in July hit their highest level since September 2022.
Peter Arnold, chief economist at EY UK, said the recovery in housebuilding activity will likely strengthen in the months to come as traders expect further interest rate cuts from the Bank of England.
“House prices and transactions have passed the bottom and are starting to recover, which will bolster firms’ confidence in building. The new government’s focus on housebuilding as a key pillar of its growth plan is also likely to be supporting confidence,” he said.
Moore noted that the supportive economic backdrop had boost order books, although he noted that the jump in demand following the election had “faded somewhat”.
Civil engineering meanwhile expanded at a “notably weaker” pace than July.
The survey’s forward looking indicators were positive, with new work in August expanding at a much faster than average pace over the first half of the year.
“Survey respondents suggested that improving economic conditions and greater domestic political stability had lifted customer demand,” it said.
This helped support confidence levels in the sector, which stand at a much higher level than last year.
Having said that, some firms were concerned by the longer-term prospects for infrastructure spending. Chancellor Rachel Reeves slashed funding for some infrastructure projects over the summer and some analysts are concerned that funding could be cut further in October’s Budget.
In a boost for the Bank of England, input price inflation remained muted in August, with cost pressures easing on the month before.