Construction activity in the UK rose at its fastest pace in three months, driven by growth in the commercial sector offsetting a sharp decline in residential construction, according to a closely monitored study published Tuesday.
The S&P Global/Cips Construction Purchasing Managers Index, which measures monthly changes in overall activity in the industry, rose from 51.1 in April to 51.6 in May, rising above the neutral 50 mark for the fourth consecutive month out.
The figure was higher than the forecast of 51.1 by economists polled by Reuters and the best since February.
Martin Beck, chief economic adviser at the EY Item Club, a consulting firm, said alongside a final May services PMI of 55.2, published on Monday, the data meant it “now looked more likely that gross domestic product will grow in K2”.
He added that the readings also increased the likelihood of a return to “meaningful (economic) growth in the second half of this year”.
The S&P Global/Cips survey shows that rising demand from corporate clients and the awarding of contracts for infrastructure projects are supporting the strongest increase in new construction orders since April 2022. Commercial construction was the best performing category, with a PMI sub-index of 54.2 in May, up from 53.9 in April.
Matthew Pointon, senior real estate economist at the consultancy Capital Economics, said the data suggested “developers believe the worst of the fall in capital values is now behind us and demand is recovering.”
Civil engineering also gained momentum, with a score of 53.9, indicating the fastest growth in nearly 12 months. However, housing project work fell for six consecutive months and at its strongest pace since May 2020, as concerns about the impact of higher interest rates continued to dampen housing demand.
The residential PMI housing index of 42.7 was the lowest in 14 years, excluding the peak of the pandemic.
Tim Moore, economics director at S&P Global Market Intelligence, said data for May showed “a mixed picture in the UK construction sector as solid growth rates in commercial and civil engineering activities contrasted with a stronger downturn in residential construction”.
The study also showed a reduction in supplier lead times as supply interruptions decreased. This helped alleviate cost pressures in the construction sector, with the overall input price inflation rate falling to its lowest level in nearly three years.
However, economists have warned that the construction industry continues to face challenges from high borrowing costs and rising living costs. Markets expect the Bank of England’s Monetary Policy Committee to raise interest rates further when it meets on June 22 – a move that Beck said would “weigh heavily on residential and commercial activity”.
