UK Construction sector sees continued growth, driven by residential rebound

The UK’s construction industry sustained its growth momentum in August, marking the sixth consecutive month of expansion, according to the latest S&P Global UK Construction Purchasing Managers’ Index (PMI). The index, which measures overall industry activity, recorded a reading of 53.6, indicating solid growth despite a slight decline from July’s 55.3, a 26-month high.

Residential construction emerged as the standout performer, with activity levels rising at their fastest pace since September 2022. The sector’s rebound was largely attributed to improving market conditions and lower borrowing costs, which have bolstered housing demand. The PMI for residential work climbed to 52.7, reflecting a robust increase in housing activity.

Tim Moore, Economics Director at S&P Global Market Intelligence, commented on the positive trends in the residential segment: “The UK construction sector appears to have turned a corner after a difficult start to 2024, with renewed vigour in the house-building segment. Lower borrowing costs and a gradual recovery in market conditions have helped boost activity, making residential work the fastest-growing sub-sector.”

Commercial construction, while still the best-performing segment overall, saw its growth rate decelerate to 53.7, the slowest since March. This slowdown was attributed to the fading impact of the post-election boost, which had previously driven a surge in new orders and sales enquiries. Nevertheless, commercial activity remained strong, supported by a more stable economic environment.

In contrast, civil engineering experienced a notable slowdown, with its PMI slipping to 51.8, reflecting only modest growth. Concerns over public sector budgets and the longer-term outlook for infrastructure spending were cited as key factors tempering the sector’s performance.

The survey also highlighted a stagnation in employment across the construction sector, ending a three-month period of job growth. Rising wage pressures and a shortage of skilled candidates were identified as primary reasons behind the halt in hiring. Furthermore, sub-contractor usage declined for the first time since January, indicating some caution among firms regarding workforce expansion.

Despite these challenges, business optimism within the construction industry remained relatively upbeat. Half of the survey respondents anticipated an increase in output over the coming year, while only 9% expected a decline. Stronger order books and an upturn in sales pipelines were noted as key factors underpinning this positive sentiment.

The data were collected between 12th and 29th August 2024, reflecting the industry’s response to the evolving economic landscape as the UK continues its recovery from earlier downturns.