Construction PMI: RSM UK calls for funding clarity to combat sector slump
Today the PMI data by S&P and CIPS showed the headline construction PMI for August decreased to 44.3, down from 44.7 in July.
Housebuilding decreased back below the 40 mark to 37.6, down from 41.8 in July.
Civil engineering rose to 40.5 from 38.3 in July, while new orders remained steady at 47.7 and future activity fell from 60.1 to 59.1.
Kelly Boorman, National Head of Construction at leading audit, tax and consulting firm RSM UK said: “Today’s PMI data shows the construction sector remains challenged by supply chain volatility, alongside uncertainty around government infrastructure spend and project mobilisation.
“Housebuilding activity remains under significant strain, with private residential continuing to fall short. The government’s initial allocation of almost £10bn from the Social and Affordable Homes programme, announced in August, marks a welcome funding boost for housebuilders. However, concerns over demand for private residential activity continues to weigh on sentiment. Further government initiatives to help boost private residential demand, such as first-time buyer incentives, would therefore be welcome by the sector, and could go a long way to easing some of the pressures faced by housebuilders.
“There’s an urgent need for greater clarity around infrastructure spend, including where and how funding will be allocated. With project delivery timelines extending and uncertainty around pipeline visibility and mobilisation of major contracts, the sector would welcome measures to enhance governance and provide early intervention support for problematic contracts. The recent update to the National Infrastructure and Service Transformation Authority (NISTA)’s assurance review toolkit and guidance is a step in the right direction, but supply chain tensions could intensify if more contracts are awarded without adequate funding and support.”
Thomas Pugh, chief economist at RSM UK added: “Today’s construction PMI marks the 20th consecutive sub-50 reading and confirms that the sector continues to struggle against a backdrop of higher energy prices, elevated market interest rates and persistent uncertainty over planning reforms. Even a scorching summer, which would usually boost activity, has been little help with the official data showing output falling for three consecutive months.
“We see little immediate relief for the sector as weaker real income growth and a sharp repricing in mortgage rates both weigh on demand. What’s more, refined products such as diesel have risen by far more than oil prices alone would suggest. Renewed tensions in Iran and limited global refining capacity are likely to keep builder’s margins under pressure for the rest of the year.”
“The good news is that the fiscal rules are much more generous to investment spending than day-to-day spending, which should give John Healey the space to embark on Andy Burnham’s ambitious housebuilding targets, in turn providing a tailwind to demand.”