Construction PMI rebounds above 40, but funding clarity needed for growth
Today’s PMI data by S&P and CIPS showed the headline construction PMI for July bounced back above the 40 mark after three months to 44.7 up from 38.4 in June. Uncertainty remains with political unsettlement around devolution of funding, policy chain and continued geopolitical tension in the Middle East.
Civil engineering rose to 38.3 from 22.1 in June, its lowest figure since the pandemic. New orders also ticked up to 47.6 from 41.5 in June, and future activity rose from 59.7 to 60.1.
Housebuilding rose to 41.8, up from 35.9 in June and following nine consecutive months below the 40 mark.
Kelly Boorman, National Head of Construction at leading audit, tax and consulting firm RSM UK said: “While it’s encouraging to see the PMI on the rise again this month, and sentiment is improving, uncertainty remains among construction firms and housebuilders around how existing infrastructure will support new plans for devolved spending. Tension in the Middle East also continues to hamper the sector, as pipelines continue to shrink and oil prices rise again.
“The Treasury’s announcement yesterday of £9 bn borrowing will stimulate construction activity, but this is a fraction of what is required to adequately support infrastructure and major project delivery over coming years. Further injection in funding and more certainty in where spend will be committed will aid sentiment, but with a realisation on the ground that mobilisation is likely to take 2-3 years under the current procurement and planning regime. As a result, further construction firm and sub-contractor administrations are likely on the horizon. Many UK infrastructure projects have also been shelved, which has impacted pipelines.
“Housebuilders need clarity around how funding for housing will be deployed, and how current barriers around planning, design and procurement can be overcome. Funding is of course welcome, but this alone won’t necessarily resolve some of the challenges the construction sector currently faces.”
Thomas Pugh, Chief Economist at RSM UK added: “The construction sector seems to have remained in the doldrums this summer, despite the good weather. Output has barely risen since 2017, and has slumped further over the last nine months. The increase in the PMI in July suggests the situation improved a little last month, but at 44.7, it’s pointing to subdued activity in the sector.
“Not only is this a mechanical drag on GDP growth, as the construction sector accounts for about 6% of the economy, but the lack of new housing and other building activity is a drag on broader productivity growth.
“The good news is that the recent fall back in oil prices should help ease input cost pressures, which are pushing up the cost of building and will make it less likely that interest rates will rise, which should support demand. What’s more, the promised surge in investment from the Burnham government could provide another boost to demand, if adequate funding and support is put in place.”