Solid output growth across UK construction sector

Business optimism remains relatively upbeat following robust upturn in total new orders

UK construction companies indicated a sustained rebound in total business activity in August, although the pace of expansion eased slightly since July. Robust new order growth and a more supportive economic backdrop underpinned the latest recovery in construction output volumes, with exactly 50% of the survey panel anticipating a rise in output during the year ahead, while only 9% forecast a reduction.

At 53.6 in August, the headline S&P Global UK Construction Purchasing Managers’ Index (PMI) registered above the 50.0 no-change value for the sixth month running. The latest reading was lower than July’s 26-month high of 55.3, but still signalled a solid expansion of overall construction output.

Commercial activity was the best-performing segment (index at 53.7), despite the pace of growth slipping to its lowest since March. A number of firms noted a boost from rising sales enquiries and the release of new orders following the general election. Civil engineering activity (51.8) meanwhile expanded at only a moderate pace that was notably weaker than in July.

Residential work was the only sub-sector to gain momentum, with growth accelerating to its fastest since September 2022 (52.7). Higher levels of housing activity were supported by improving market conditions and lower borrowing costs.

August data indicated another robust increase in total new work across the construction sector. The rate of expansion was much stronger than seen on average in the first half of 2024. Survey respondents suggested that improving economic conditions and greater domestic political stability had lifted customer demand.

According to the survey panel, strengthening order books and an upturn in sales pipelines underpinned positive sentiment regarding the year ahead business outlook. Confidence levels were much higher than at the same time in 2023. That said, some firms cited concerns about public sector budgets and longer-term prospects for infrastructure spending.

Tim Moore, economics director at S&P Global Market Intelligence, said: ‘The UK construction sector appears to have turned a corner after a difficult start to 2024, with renewed vigour in the house building segment the most notable development in August. Residential work expanded at the fastest pace for almost two years as lower borrowing costs and a gradual recovery in market conditions helped to boost activity.

‘Commercial building was the best-performing part of the construction sector as the improving UK economic backdrop resulted in stronger order books, but the post-election bounce in demand faded somewhat in August.

‘Another robust expansion of incoming new work was recorded in August, highlighting that new project starts are set to support a broader rebound in construction activity during the months ahead.

‘Improving sales pipelines and a turnaround in demand conditions led to a relatively strong degree of business optimism across the construction sector. However, some firms cited a slowdown in civil engineering activity and concerns about the outlook for infrastructure work as constraints on growth expectations.’