Construction Industry Returns to Growth in July, Says Survey
The construction industry in the UK has defied recent trends and experienced growth in July, according to a highly regarded survey. The S&P Global/CIPS construction purchasing managers’ index (PMI) for July revealed that commercial activity and civil engineering work increased, offsetting the decline in housebuilding. The index, which measures construction activity, rose to 51.7, the highest level since February, compared to June’s five-month low of 48.9. A reading below 50 indicates contraction, while a reading above 50 indicates growth.
Although housebuilding declined in July, the rise in corporate work compensated for it. The survey attributed the increase in corporate work to “resilient demand for a range of commercial projects.” Companies participating in the survey reported an increase in office refurbishing jobs and infrastructure work. However, firms identified the rising cost of borrowing as a challenge, as it led to fewer sales enquiries and slower decision-making among prospective buyers.
Despite the slowdown in the pace of housebuilding contraction, with a reading of 43 compared to last month’s three-year low of 39.6, the PMI for July marked the eighth consecutive month of contraction in the sector.
Earlier in the week, Taylor Wimpey, the UK’s third largest housebuilder, reported a decline in sales and profits for the first half of 2023, indicating a decrease in house purchases. However, economic research firm Pantheon Macro noted that demand has remained resilient. The firm suggested that commercial builders may be better positioned to withstand the impact of higher borrowing costs, as they have relatively little debt, excess cash, and profitable capital projects.
While reduced demand has had a negative impact on the construction sector, it has also led to a slower rate of building materials inflation compared to the first half of 2023. The commercial activity index increased to 54.4 in July, up from 53 in June, and the civil engineering activity index strengthened to 53.9, up from 53.1.
Overall, the construction industry’s return to growth in July is a positive sign for the sector, particularly in commercial and civil engineering projects. However, challenges such as rising borrowing costs and reduced demand in the housing market continue to pose risks to the industry’s recovery.