Construction PMI: Heavy rainfall dampens output as industry calls on government for skills reform

06 March 2024

According to the latest PMI data by S&P and CIPS, the headline construction PMI for February increased slightly to 49.7, up from 48.8 in February. This latest uptick was driven by housing activity rising sharply to 49.8, continuing the six-month upward trend. Mortgage applications also saw a sharp jump at the start of the year, suggesting there are reasons for cautious optimism as business and consumer confidence returns to the market. 

However, despite the increase, the headline PMI is still below 50, and with suppliers’ delivery times now at the lowest level in 12 months (50.6), this indicates that headwinds remain as the Red Sea crisis disrupts the shipping of core materials. 

Kelly Boorman, national head of construction at RSM UK, said: ‘This month’s slight uptick in the headline PMI to 49.7 reflects growing but cautious optimism in the industry. Although February saw record levels of rainfall, which deterred some progress onsite, housing activity has jumped sharply to 49.8, up from 44.2 in February, a sign that the industry is moving in the right direction, as a rise in housing transactions and prices help to restimulate the market. With mortgage applications also shooting up at the start of the year and interest rates reaching their peak, this upward trend is likely to continue, leading to restored business and consumer confidence. This is also reflected in the new orders index increasing to 50.9, the highest level since July 2023, which is echoed by businesses who feel positive about the volume of major contract work available, with government outlining spend of up to £775bn over the next ten years in its national infrastructure and construction pipeline plan.’

She added: ‘However, the industry is finding it difficult to make long-term commitments to projects due to workforce challenges, and with falling numbers of apprentices and half a million workers set to retire in the next ten years, the industry could be facing a real skills and productivity issue. In addition, while housing activity saw further improvement, the headline PMI is still below 50 for the sixth consecutive month, showing that sector activity is still subdued. Industry is wary of overtrading and will therefore be hoping today’s Spring Budget focuses on upskilling and investment, to reform the apprenticeship levy. This will help to ensure businesses are better equipped and financially supported to deliver on the government’s infrastructure and construction pipeline, while resolving the industry’s acute workforce challenges.’

Thomas Pugh, economist at RSM UK, commented: ‘The gradual recovery in the construction industry continued in February, despite the exceptionally wet weather, driven by an improvement in housebuilding. And there are valid reasons to expect things to pick up in the second half of this year. House prices have started rising again and there is a tentative recovery in the housing market that should accelerate into the rest of this year as interest rates start to fall in the summer, assuming there are no misadventures in the Budget this afternoon. All this should support housing construction.  

‘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, the continued return of office working and stronger business confidence will help commercial development. 

‘With the suppliers’ delivery times index falling to 50.6, indicating that it is becoming harder to get materials, there is an indication that the Red Sea crisis is hampering construction efforts. However, this is still far above the depths reached during the pandemic-induced supply chain crunch, suggesting that these issues won’t have such an acute effect on the industry. 

‘Overall, the first half of this year will remain tough, but there are clear signs that the industry is recovering and the outlook is brighter for the second half of 2024 and into 2025.’