UK Construction Growth Slows On Weaker Residential Work Demand

The UK construction activity logged only a marginal expansion at the end of the first quarter, as the faster rise in the civil engineering category was offset by lower demand for residential works, survey results from S&P Global showed Thursday.

The Chartered Institute of Procurement & Supply construction Purchasing Managers’ Index, or PMI, dropped more-than-expected to 50.7 in March from 54.6 in February. The expected reading was 53.5.

A reading above 50 suggest growth in the sector.

In March, civil engineering was the fastest-growing sector of construction output, boosted by work on HS2 high-speed railway infrastructure projects and robust demand for other transport-related construction activity.

There was also an increase in commercial building work in March, though the rate of expansion eased from February’s nine-month high.

On the other hand, housing activity declined at the fastest pace since May 2020, linked to fewer tender opportunities due to the rising borrowing costs and a subsequent slowdown in new house building projects.

However, overall new work received by the British construction companies rose further in March, and the latest rate of growth was the second fastest since July last year.

As a result of increased workloads, staff recruitment accelerated to its fastest pace in five months.

Construction firms reported improved supply conditions in March due to greater availability of construction products and materials, along with fewer logistics bottlenecks. The overall improvement in vendor performance was the strongest since November 2009.

On the price front, input prices rose sharply in March amid elevated energy costs and rising staff wages. Nonetheless, the rate of inflation was the second-lowest since November 2020.

According to the PMI survey, 46 percent of firms predict an increase in business activity during the year ahead, while only 11 percent foresee a reduction. The corresponding positive sentiment rose to its highest since February 2020.

“Survey respondents often cited improved availability of construction inputs and subsequent hopes that purchasing price inflation would moderate in the months ahead,” Tim Moore, economics director at S&P Global market intelligence, said.

Elsewhere on Thursday, survey data from Halifax and S&P Global showed that UK house prices rose for a third month in a row in March, defying expectations, to reflect the resilience of the housing market.

The Halifax house price index climbed 0.8 percent month-on-month following a 1.2 percent increase in each of the previous three months. Economists were looking for a 0.3 percent fall.

On a year-on-year basis, the house price index rose 1.6 percent in March after a 2.1 percent increase in the previous month. Economists had forecast a modest 0.3 percent growth.

The rate of annual increase in house prices was the weakest since October 2019, Halifax said.

“Overall these latest figures continue to suggest relative stability in the housing market at the start of 2023 and align with many other recent industry surveys and data,” Halifax Mortgages Director Kim Kinnaird said.

“The principal factor behind this improved picture has been an easing of mortgage rates,” Kinnaird added.

Meanwhile, data released by the Nationwide Building Society last week showed that the UK’s house prices in March logged their biggest decline since July 2009, indicating the continuing weakness in the UK residential property market.

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