Credit By: Plan Insurance
The latest S&P Global UK Construction Purchasing Managers’ Index™ (PMI®) for January 2024 reveals a mixed picture for the UK construction industry. While there is an increase in business activity expectations, current output levels continue to decline, and new work orders show a marginal fall. However, optimism among construction companies has reached its highest level in two years, driven by hopes of a turnaround in client demand due to improved financial conditions and economic prospects.
Moderate Decline in Activity:
The PMI registered 48.8 in January, up from 46.8 in December, indicating an average decline in total industry activity. This marks the fifth consecutive month the index remained below the crucial 50.0 threshold.
- Civil Engineering: Civil engineering was the best-performing segment (index at 49.8), with output levels stabilizing.
- Commercial Activity: Commercial activity showed resilience, with only a marginal rate of decline (index at 49.1).
- House Building: House building continued to fall sharply (index at 44.2), attributed to subdued demand conditions and a lack of work.
New Work Orders:
Total new work orders declined for the sixth consecutive month, albeit marginally. Delayed decision-making among clients and subdued market conditions, particularly in house building, contributed to the decline.
Despite peaceful order books, construction companies anticipate a sharp upturn in business activity. Around 51% of the survey panel forecast a rise in business activity for the year ahead, the highest level of optimism since January 2022.
Employment and Costs:
Total employment numbers fell slightly, and sub-contractor usage remained unchanged. However, rates charged by sub-contractors increased, and input costs rose at the fastest pace since May 2023, attributed to higher prices for imported items.
Tim Moore, Economics Director at S&P Global Market Intelligence, noted that UK construction companies are increasingly optimistic about the future, driven by fading recession risks and anticipated interest rate cuts. He emphasized the importance of looser financial conditions and an improving economic backdrop in strengthening business activity expectations.
While the UK construction sector faces challenges such as declining output levels and softening demand, the optimism among companies signals a potential turnaround shortly. With expectations of improved financial conditions and higher consumer confidence, the industry anticipates a boost in construction activity throughout 2024. However, amid ongoing market uncertainties, cautiousness remains regarding staff hiring and managing input costs.
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