Rise in civil engineering activity boosts UK construction sector

The UK construction industry returned to growth in March for the first time in seven months, driven by a rise in civil engineering activity, according to a closely watched survey published on Friday.

The S&P Global/Cips UK construction purchasing managers’ index, a measure of the health of the industry, rose to 50.2 from 49.7 in February, the fourth consecutive month-on-month increase. It was the first time since August that the reading exceeded 50, indicating that most businesses reported expansion.

“The marginal overall rise in total construction activity ended a six-month period of contraction,” said Tim Moore, economics director at S&P Global Market Intelligence. “The near-term outlook for construction workloads appears increasingly favourable.”

Respondents reported the strongest increase in new orders since May last year, citing “a turnaround in sales pipelines and greater new business inquiries linked to the improving economic outlook and more stable financial conditions”.

The civil engineering sector led the way with the sub-index rising to 50.4 from 49.9 the previous month, driven by increased demand for energy and infrastructure projects.

Housebuilders registered a marginal improvement from 49.8 in February to 49.9, a 16-month high, while the commercial construction sub-index rose from 49.0 to 49.9.

“The slight rise in the housing activity balance . . . took it to its highest level since November 2022 and implies housing construction has now stabilised,” said Matthew Pointon, senior property economist at the research company Capital Economics. “We think this reflects . . . a recovery in demand as mortgage rates have eased.”

Mortgage approvals hit a 17-month high in February helped by further falls in the cost of home loans, according to the Bank of England.

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However, data from mortgage provider Halifax published on Friday showed the first month-on-month fall in UK house prices in March since September, adding to signs of inconsistency in the property market recovery.

The survey also recorded a reduction in staffing levels and a third consecutive month-on-month rise in purchasing costs, as inflationary pressures continued to affect the industry.

Respondents were upbeat about the outlook with 49 per cent positive about business activity in the coming year, with many pointing to strong order books and an improving market as reasons for hope. Only 11 per cent expected activity to fall.

“Construction companies generally commented on a broad-based rebound in tender opportunities, helped by easing borrowing costs and signs that UK economic conditions have started to recover in the first quarter of 2024,” Moore said.