UK construction companies reported another strong rise in business activity during April, but the speed of recovery lost momentum as the industry reported weaker new orders.
At 58.2, down from 59.1 in March, the S&P Global/CIPS UK Construction Purchasing Managers’ Index – which measures month-on-month changes in total industry activity – signalled the weakest rate of output growth since January.
The report says: “Signs of a slowdown in client spending contributed to another drop in growth expectations, with the degree of optimism about future workloads the lowest since September 2020.”
Residential work remained the worst-performing sub-sector and saw the greatest loss of momentum, with a 53.8 mark in April, against 54.9 in March.
The fastest-growing sub-sector remained commercial work, at 60.5, followed by civil engineering at 56.2.
Overall, the index has nonetheless posted above the crucial 50.0 no-change mark in each month since February 2021.
But the report adds: “The near-term outlook for construction activity deteriorated in April as total new order volumes expanded at the slowest rate for four months. Escalating raw material prices and, in some cases, hesitancy due to higher borrowing costs and geopolitical uncertainty were reported as headwinds to demand.”
Yesterday, the Bank of England lifted the base rate by 25 basis points to 1%, the highest level since 2009.
Chartered Institute of Procurement & Supply group director Duncan Brock says: “Inflation hit the highest rate since September 2021, impacted on budgets and made customers think twice about committing.
“Job creation grew quickly to complete work in hand, risking over-inflating capacity should new order growth slow further. With the Bank of England confirming the interest rate as the highest for 13 years, the squeeze on business lending also led to a relatively gloomy outlook amongst builders for the year ahead, with sentiment the lowest since September 2020.”
Naismiths director Gareth Belsham adds: “Storm clouds might be gathering but they haven’t yet broken. Britain’s construction sector is still busy and new orders continue to roll in, but it is losing momentum.
“The pace of new orders has slowed to its weakest level of the year so far, and while many builders still have bulging order books, their optimism about what the next 12 months will bring is slowly starting to slide.
“This week’s decision by the Bank of England to raise interest rates, not to mention its bleak economic forecast, will serve as a reality check for housebuilders in particular.
“While the property market remains buoyant, rising borrowing costs and the possibility of a recession will both cool demand in coming months – and this may be why residential construction is already growing more slowly than any other sector.
“Until now the construction industry has generally managed to shrug off the impact of soaring material and transport costs. But with cost inflation still painfully high – and back to its highest level since last September – any further slowdowns in growth and demand could take an outsized toll.
“With the outlook for construction steadily darkening, things are finely balanced for the industry that has long been the best bellwether of the wider economy.”
