PMI rises

Rise in construction activity eases recession fears

Construction
Construction has picked up (pic: Terry Murden)

Construction activity grew at its fastest pace in nine months in February, providing further evidence that the risk of recession is easing.

The jump in the purchasing managers’ index came after two months of declines, as a rebound in commercial work and civil engineering helped offset a continued fall in house-building.

Martin Beck, chief economic adviser to the EY ITEM Club, said: “Following a rebound in the services and manufacturing PMIs in February, the construction PMI followed suit, rising to 54.6 from 48.4 in January.

“This was the first reading in expansionary, 50+ territory in three months and the highest since May 2022. Combined with other upbeat indicators from the retail sector, consumer confidence and tax receipts, the latest PMIs suggest the risk of recession is easing.”

Construction activity was buoyed by signs of an improving economic outlook, a fall in supplier delays and a further easing in input price inflation.

“Whether the sector can continue February’s revival in activity is debatable,” said Mr Beck. “The downturn in the housing market is likely to persist, given relatively high mortgage rates, a weak economy and the closure of the Help to Buy scheme at the end of this month.

“A watering down of what had been mandatory targets set by the [UK] government for house building presents another obstacle.

“Higher interest rates are also impacting construction firms’ balance sheets and a poor environment for business investment will likely drag on commercial projects. 

“That said, optimism among firms in the latest S&P Global/CIPS survey was at a 12-month high. What is a comparatively energy-intensive sector will likely benefit disproportionately from the recent substantial fall in wholesale energy prices.

“As a relatively cyclical industry, construction could be among the first to benefit from the economic recovery the EY ITEM Club expects to become embedded as 2023 proceeds.”



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