Construction consolidation looms amid labour shortages and project delays

According to the latest PMI data by S&P and CIPS, the headline construction PMI for May increased slightly to 47.9, up from 46.6 in April, but remained below 50 for the fifth consecutive month.

The main contributors to the monthly uptick were civil engineering activity and commercial activity, which rose to 45.9 and 49.5. However, housing activity fell to 45.1.

Kelly Boorman, National Head of Construction at RSM UK, said: “The headline PMI ticked up slightly for the fourth consecutive month, boosted by the driest spring in over 50 years. However, activity remains subdued, with the index still below 50 and signalling contraction amid persistent labour shortages, rising employment costs, and growing uncertainty towards planning reform.

“This uncertainty is filtering into key subsectors, particularly housing, where volumes remain steady rather than stellar. This casts further doubt on the government’s ability to reach its 1.5m new homes target and reinforces industry sentiment that planning reforms won’t accelerate housebuilding. While May saw more favourable weather and the tail end of April’s stamp duty incentives, housing activity dipped, suggesting policy is having little to no impact. However, the continued easing of mortgage lending rules should also stimulate the market, making home ownership more affordable for first-time buyers.

“Although civil engineering activity saw an uptick, it’s still well below 50, with construction businesses waiting for the government to mobilise major projects. Some of these project delays are also worsened due to tariffs uncertainty, which has caused material prices to spike and tightened the supply chain. As such, we could see more consolidation in housebuilding and labour shifts in civil engineering to preserve materials, equipment and skilled workers.”

She added: “Next week’s Government Spending Review could therefore be a critical turning point. Following £1.5bn in extra funding for military homes and the ‘Speeding Up Build Out’ working paper, businesses are hopeful that the government will finally push forward and accelerate housebuilding. However, plans to tighten immigration rules spell trouble for the sector, which is still heavily reliant on manual labour. If the government is serious about ramping up infrastructure and housing projects, it must ensure access to overseas talent and incentivise businesses to invest in technology to alleviate labour constraints.”

Thomas Pugh, Economist at RSM UK, added: “The tick up in the construction PMI in May is another sign that the economy started to improve after the tariff turmoil in April. However, at just 47.9 the PMI is still pointing to weakness in the construction sector, despite the driest weather in 50 years.

“What’s more, the residential sector remained extremely weak with the housing activity index falling to just 45.1. Indeed, the housing balance has been below the crucial 50-mark (balances below 50 imply contraction) for the last eight months. There will have to be a huge turnaround in the sector’s momentum for the government to come anywhere close to its housebuilding target.

“More positively, the input prices balance dropped back a little, suggesting that the jump in costs in April was easing.

“Overall, lower interest rates, a recovering housing market and rising government investment should all help to boost the construction sector over the next few years, but improvements are likely to be slow and gradual, not least due to capacity constraints within the sector.”