According to the latest PMI data by S&P and CIPS, the headline construction PMI for February dropped slightly to 44.5 from 46.4 in January. Civil engineering rose slightly to 41.0 from 40.6 in January, while housebuilding decreased toto 37.0 from 39.3.

While the slight drop in some indicators paints a mixed picture of the market, there remains a number of issues, including labour shortages and barriers to planning, that will have a more acute impact as activity accelerates.

Kelly Boorman, national head of construction at leading audit, tax and consulting firm RSM UK, said: “The inconsistent trajectory of the headline construction PMI was partly a result of the wet weather in February, which to some extent has masked some marginal improvements Consequently we’d expect a further uptick in March. The drop in housebuilding shows the market is not recovering at the level or speed we would hope.

“Civil engineering rose slightly. Pipelines are healthy albeit with some challenges on the ground, particularly in housebuilding. However, more clarity from Government around future public funding, both in terms of its scale and deployment is key. Until that is clear, operators will be hesitant to commit to where, how and at what pace they invest.

“Supply chains are stable, and availability of materials is good. However, we’re not yet seeing a meaningful uptick in sales volumes or buyer interest. But as demand increases, this is likely to put considerable strain on supply chains and availability of materials in future, which will drive prices up and further squeeze margins.

“Whilst the Government has made some encouraging progress on planning policy reform, the viability constraints that remain weigh heavily on a sector struggling to keep pace with demand. The Government has reiterated its target of 1.5 million homes during this Parliament and introduced key planning reforms, but Tuesday’s Spring Statement did not include the fiscal or market interventions needed to restore confidence and boost delivery at scale. Housebuilders continue to bridge the gap in government incentives, questioning viability of certain developments due to margin pressures.

“Cost of debt, lack of clarity of government spend, the Building Safety Levy and delays in planning reform are all culminating to present a severe set of structural challenges that will continue to act as a handbrake on market recovery.

“Apprenticeship shortages also present a real challenge to housing targets. Essential to addressing future skills shortages, market constraints are restricting builders’ ability to recruit and train them. Whilst AI and robotics will help plug manual labour shortages in future, many housebuilders don’t have enough working capital to roll out these modernisation programmes at scale. So, reliance on a manual labour force will continue.

“One increasing area of focus for housebuilders in search of optimising cost is standardisation. We are increasingly seeing the use of data at a much deeper level to help organisations better understand development viability, buyer profile and trends alongside historic and projected margin performance optimising how homes get built.”

Thomas Pugh, chief economist at RSM UK added: “The outlook from here will be largely determined by how energy prices evolve. If energy prices revert to previous levels in the next few weeks, the economic impact should be limited. The Bank of England may not cut interest rates in March, but could still make cuts in April, and the housing market should continue to gather momentum.

“However, if oil and gas prices continue to rise, the resulting impact on inflation will be a constraint on real income growth, and result in fewer interest rates cuts this year, if any. As a result, housing affordability would be stretched, dampening the emerging green shoots of a housing market revival.

“At the same time, input costs would rise sharply, further reducing already squeezed margins. Indeed, the input prices balance had already risen to its highest level since July in February.

“It is too early to tell how prolonged the impact will be at this point, but the construction industry is more exposed than other sectors, due to the sensitivity of demand and financing to interest rates, as well as its energy intensive nature.”

Related news