UK construction sector growth slows amid rising costs

by | May 6, 2022

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UK construction sector growth slowed in April as rising costs and economic uncertainty dented demand, according to a survey released on Friday.
The S&P Global/CIPS construction purchasing managers’ index fell to 58.2 from 59.1 in March, marking the worst rate of growth since January but coming in above expectations for a reading of 58.0. A reading above 50.0 indicates expansion, while a reading below signals contraction.

The fastest-growing construction segment remained commercial work, with the index at 60.5, followed by civil engineering at 56.2. Construction firms highlighted pent-up demand for commercial projects and spending related to Covid recovery plans.

Meanwhile, major infrastructure schemes such as HS2 were cited as factors underpinning civil engineering activity. Residential work remained the worst-performing sub-sector, with the index falling to 53.8 in April from 54.9 in March.

The survey revealed the slowest new order growth so far in 2022, with the index declining to 56.8 in April from 58.9 the month before.

Tim Moore, economics director at S&P Global, said: “The construction sector is moving towards a more subdued recovery phase as sharply rising energy and raw material costs hit client budgets. House building saw the greatest loss of momentum in April, with the latest expansion in activity the weakest since September 2021. Commercial and civil engineering work were the most resilient segments, supported by COVID-19 recovery spending and major infrastructure projects respectively.

“Construction companies have built up strong order books since the reopening of the UK economy, which led to another round of rising employment in April and these project starts should keep the sector in expansion mode during the remainder of the second quarter.

“However, tender opportunities were less plentiful in April as rising inflation and higher borrowing costs started to bite. Consequently, longer-term growth projections have slumped from January’s peak, with business optimism now the weakest since September 2020.”

Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said: “Looking ahead, the outlook for the construction sector is mixed. Encouragingly, surveys of business confidence and investment intentions remain slightly above their long run average level, despite falling in recent months, consistent with steady growth in new commercial orders.

“In addition, the government is planning for a 21.5% year-over-year increase in public sector gross investment this year, rebounding from weakness in 2021/22 caused by supply bottlenecks. Demand for new homes, however, looks set to fall in response to both the sharp fall in households’ real disposable income and a further increase in new mortgage rates.

“Meanwhile, shortages of raw materials and labour likely will be resolved only gradually over the course of this year. Accordingly, we expect construction output only to be about 1.5% higher in Q4 than in Q1.”

Reporting by Michele Maatouk at Sharecast.com.

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