Business optimism in construction sector hits two-year high, despite subdued order books
UK construction companies indicated a strong improvement in business activity expectations in January, with optimism reaching its highest level for two years. This was despite an ongoing decline in current output levels and a marginal fall in incoming new work. Survey respondents often cited hopes of a turnaround in client demand due to looser financial conditions and more favourable underlying economic prospects.
The headline S&P Global UK Construction Purchasing Managers’ Index (PMI) registered 48.8 in January, up from 46.8 in December and the highest reading since August 2023. That said, the index remained below the crucial 50.0 no-change threshold for the fifth month running and signalled a moderate decline in total industry activity.
Civil engineering was the best-performing segment in January (index at 49.8), with output levels close to stabilization. Commercial activity also showed some resilience, with the respective index pointing to only a marginal rate of decline (49.1).
Meanwhile, house building continued to fall sharply at the start of 2024 (index at 44.2). Survey respondents noted subdued demand conditions and a lack of work to replace completed projects. The rate of contraction for residential activity nonetheless eased to the least marked since March 2023.
January data indicated a reduction in total new work for the sixth consecutive month, but the pace of decline was only marginal and the weakest seen over this period. Companies reporting a fall in new business generally cited delayed decision-making among clients and subdued market conditions, especially in the house building segment.
Despite subdued order books, the latest data signal a sharp upturn in business activity expectations. Around 51% of the survey panel forecast a rise in business activity during the year ahead, while only 12% predict a decline. This points to the highest level of business optimism since January 2022. Lower borrowing costs and higher consumer confidence were cited as factors likely to boost construction activity over the course of 2024.
Tim Moore, economics director at survey compilers S&P Global Market Intelligence, said: ‘UK construction companies seem increasingly optimistic that the worst could be behind them soon as recession risks fade and interest rate cuts appear close on the horizon. The prospect of looser financial conditions and an improving economic backdrop meant that business activity expectations strengthened to the highest for two years in January. Moreover, there were again signs that customer demand is close to turning a corner as total new orders fell to the smallest extent for six months.’