Construction PMI: Tides turn for construction industry following sharp rise in future activity

According to the latest PMI data by S&P and CIPS, the headline construction PMI for January increased to 48.8, up from 46.8 in December. This latest rise was driven by a large uptick in future activity to 69.9, with further increases to civil engineering activity, commercial activity and new orders. 

In addition, housing activity rose to 44.2, continuing the five-month upward trend, which, coupled with the uptick in the number of mortgages offered in December, against the usual seasonal downtrend, indicate that the market is starting to stabilise. But, with input prices rising sharply to 53.7, there could be further headwinds from the shipping disruption caused by the Red Sea crisis. 

Kelly Boorman, national head of construction at RSM UK, said: ‘This month’s slight uplift in the headline PMI to 48.8 brings further welcome news for the construction industry. Although January was a relatively dry month, which is good for progress onsite, the headline PMI is still below 50 for the fifth consecutive month, showing that sector activity is still subdued. However, there are still reasons for cautious optimism, as reflected in a number of rising indices showing that things are moving in the right direction. 

‘More encouragingly, we’re starting to see housing transactions and house prices rise, which coupled with December’s uptick in mortgages, will help to restimulate the housing market, which had reached its lowest point last year. Further upticks in housing activity are likely in the coming months, especially now that interest rates have reached their peak. Commercial market activity may also see an uplift this year, as more and more businesses focus on returning to the office, making a case for increased demand. 

‘There remain challenges, as last year, construction saw a 6% fall in apprenticeship starts. In addition, with more than 500,000 UK construction workers also set to retire in the next ten years, so the industry could be facing a real skills and productivity issue.’ 

She added: ‘Looking ahead in 2024, there is more visibility of the pipeline for major contracts, as previously shelved projects return to the marketplace. Further clarity from the government outlining spend of up to £775bn on infrastructure projects over the next ten years will enable construction businesses to consider long-term planning and investment for the first time in several years.’  

Thomas Pugh, economist at RSM UK, commented: ‘The slow start to the year for the construction industry is not surprising given the malaise in the wider economy and especially the housing market. However, there should be a fundamental improvement by the summer. Sharp falls in inflation will allow the Bank of England to start cutting interest rates in the summer, which will support house prices and transactions. At the same time, lower inflation and tax cuts will drive increases in real wages further supporting housing affordability. What’s more, lower interest rates and the continued return of office working will help commercial development. Overall, the first half of this year will remain tough, but the outlook is brighter for the second half.’