Positive PMI

Construction in growth but outlook remains fragile

There is evidence of a pick up in construction activity (pic: Terry Murden)

A return to growth for the construction industry means every sector of the UK economy is now expanding, though it comes amid concern that interest rate cuts will be delayed until later in the year or into next.

The March index from the Chartered Institute of Procurement and Supply, together with S&P Global, rose to 50.2 in March from 49.7 in the previous month, representing an end to six months of contraction.

The services Purchasing Managers Index scored 53.1 and manufacturing leapt to a 20-month high of 50.3. It is the first time that all three readings have been in growth since June 2022.

The rise in the construction index was driven by an increase in civil engineering work and a restarting of housebuilding projects.

This comes amid a slowdown in the cost of materials and hopes that a series of interest rate cuts will begin in June. That would enable mortgage rates to be cut, encouraging more buyers into the market. Halifax said this morning that prices had dropped by 1% over the past month, though they are still up by 0.3% compared with the same period last year.

Matthew Pointon, senior property economist at the Capital Economics consultancy, said: “Falling interest rates should lead to a gradual rise in construction activity over the next year.”

However, a surge in US job creation has raised the likelihood of rate cuts being delayed in order to avoid a reversal of the gains made in taming inflation. The US, UK and Eurozone are expected to act in unison, with earlier talk that the latter may cut before the US now likely to be up for debate if fears of a new inflationary spiral takes hold.

Atul Kariya, head of real estate and construction at MHA, was more cautious about the outlook.

“While the slight rise in today’s construction PMI data is positive news and reflects improved sentiment from an admittedly low base, it is certainly not a sign of sustained recovery in the sector, and conditions remain challenging.

Office construction is gathering pace (pic: Terry Murden)

“Activity in the commercial sector is picking up steadily although typically contracts are continually being deferred to later in the year.

“Despite the drop in house prices last month reported this morning by Halifax our clients are anticipating that sentiment will improve as we head into late Spring and early Summer.

“However, to ensure a sustained recovery for the housing industry the basic fundamentals have to change.

“The lack of political stability, relatively high corporation tax in comparison with competitors like Ireland, and the associated cost of capital in the UK are making it a less favourable option for real estate investors.

“The next government, of whatever political persuasion, needs to set out a five-year plan to support the industry and make the UK attractive to investors once again.”

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