UK construction output levels continue to fall
Output levels fall for the third month in a row; Lowest business optimism since October 2023
UK construction companies indicated a sustained downturn in business activity in March. The headline S&P Global UK Construction Purchasing Managers’ Index (PMI) posted 46.4, up from a 57-month low of 44.6 in February but still well below the neutral 50.0 threshold. Lower volumes of construction output have now been recorded for three consecutive months and the latest reading indicated a solid pace of contraction.
Civil engineering (index at 38.8) was the weakest-performing area of activity in March. The sharp decline in output levels was attributed to delayed decision-making on new projects and a generally subdued pipeline of major infrastructure work. The rate of contraction accelerated to its fastest since October 2020.
Residential construction activity declined at a slower pace than in February, but the respective seasonally adjusted index was still well inside negative territory (44.7). Survey respondents typically commented on weak demand conditions, although some suggested that easing borrowing costs had helped to support confidence.
Commercial building (47.4) deceased only moderately in March, although the rate of contraction was the fastest since January 2021. Lower business activity was linked to lacklustre UK economic prospects and the impact of rising geopolitical uncertainty on clients’ investment spending.
Lower workloads, elevated interest rates, and worries about the broader economic outlook continued to weigh on business activity expectations in March. Confidence across the construction sector slipped to its lowest since October 2023. However, some firms noted positive sentiment regarding the outlook for demand across the renewable energy sector and hopes of a turnaround in infrastructure workloads.
Tim Moore, economics director at S&P Global Market Intelligence, said: ‘March data highlighted a challenging month for UK construction companies as sharply reduced order volumes continued to weigh on overall workloads.
‘Civil engineering experienced the biggest setback as activity decreased to the greatest extent since October 2020. Survey respondents commented on subdued sales pipelines and a subsequent lack of infrastructure work to replace completed projects.
‘Commercial work also saw a headwind from delayed decision-making on major projects, largely due to worries about the impact of rising global economic uncertainty. The downturn in residential construction activity nonetheless eased since February, providing a source of encouragement despite ongoing reports of sluggish demand conditions.
‘Construction companies remained cautious about their year-ahead growth prospects, as fewer sales conversions and a third successive monthly reduction in total new work hit confidence levels. Overall business optimism slipped to its lowest since October 2023.’
