Construction industry calls on clarity from next government as housing activity falls

04 July 2024

According to the latest PMI data by S&P and CIPS, the headline construction PMI for June fell slightly to 52.2, down from 54.7 in May and following the upward trend of three consecutive months, which saw the highest level of activity since June 2022.

The main contributors to the latest fall were housing activity and civil engineering activity, which decreased to 47.6 and 51.3. Availability of subcontractors increased to 59.5, while future activity and new orders fell to 71.3 and 51.8.

Kelly Boorman, national head of construction at RSM UK, said: 'The headline construction PMI fell slightly in June, however this isn’t necessarily a cause for concern, as activity remains above Q1 2024 and is likely a reflection of monthly volatility as the industry continues its gradual recovery.  Despite mild weather last month, pipelines have seen a slight decline, with dips in housing and civil engineering activity showing that housebuilding and infrastructure projects remain integral to the industry’s recovery, highlighting the need for clarity from the next government to ensure housing targets can be met.

'With the availability of subcontractors increasing, it appears there has been a delay to works carried out in June, which may be linked to businesses waiting on the outcome of today’s general election. With housing targets, infrastructure investment and planning reform outlined as priorities by both major political parties, industry will be keeping a keen eye on how the next government will look to restimulate the market and support long-term growth, especially as housebuilders anticipate a ramp up in 2025. We also expect interest rates to fall later in the year, which will help housebuilders manage material costs and margins throughout the supply chain, attracting potential inbound investment opportunities.

She added: 'However, with housebuilders predicting a ramp up next year, the supply chain could face challenges in forecasting material volumes to meet new demand, especially as housebuilders are unable to commit to confirm when projects will be delivered. This could lead to stockpiling and increased material prices, which alongside rising labour costs, will make it difficult for businesses to preserve margins and deploy labour. The next government must therefore adopt a holistic approach to infrastructure and planning reform, providing the industry with visibility on pipelines and investment, enabling businesses to make more informed and long-term growth decisions when bidding for projects and mitigate risk throughout the supply chain.'

Thomas Pugh, economist at RSM UK, added: 'We are not particularly concerned by the dip in S&P/CIPS construction PMI in June. The picture is still one of gradual improvement with the PMI averaging 53.3 in Q2 compared to 49.6 in Q1.

'The small rise in input price inflation to 51.1 is of equal importance, suggesting that price pressures are still easing across the whole economy, not just one particular sector, which is good news for the prospects of interest rates cuts later in the summer.

'It is disappointing that the housing index fell back to 47.6 given that the economy is desperately crying out for more homes. But we continue to expect the housing market to recover as real incomes rise and the Bank of England starts cutting interest rates from August, which should stimulate house building.'

He added: 'Overall, the PMIs are still painting a picture of a gradually recovering economy. It will probably not be until the second half of the year when growth picks up sharply as lower inflation, falling interest rates and tax cuts should kick start consumer spending, which should then flow through to an improvement in business confidence and the rest of the economy.'