Construction work growing as product delays ease

The construction sector experienced a “robust increase” in business activity in February as supplier delays were at their lowest in three years.

February’s activity hike broke a two-month period of decline, while growth was at its highest since May 2022, according to the latest Purchasing Managers’ Index (PMI) data.

The uptick was supported by a “marked rebound in commercial work and a positive contribution from civil engineering activity”, according to data compiled by S&P Global and the Chartered Institute of Procurement & Supply (CIPS).

Delays for suppliers, meanwhile, were at their lowest in more than three years, while input cost inflation also eased.

The PMI rating, based on a monthly survey of 150 construction firms, soared to 54.6 in February. A score above 50 indicates that activity is expanding, while below 50 suggests it is slowing.

The score comes a month after economists warned a “wrecking ball” of higher inflation and interest rates had hit the sector, in particular residential output.

But the latest data showed commercial construction saw its steepest growth in nine months, with a 55.3 PMI rating. Contractors partly attributed that to demand for commercial projects starting to increase again due to the improving near-term economic outlook.

Crucially, civil engineering also returned to growth at 52.3, but residential output fell for the third consecutive month, coming in at 47.4. However, the speed of the downturn had eased slightly.

Respondents to the survey attributed the residential fall to “subdued market conditions due to elevated interest rates” as well as developers cutting back on new housebuilding projects due to weakening demand.

Falling transportation bills, which were partly caused by falling delivery times, also offset higher input costs effected by rising energy bills and salary inflation, according to the survey.

Lloyds Bank infrastructure and construction team leader Max Jones “welcomed” the improved performance, adding: “Despite an uncertain economic picture, many in the industry feel confident.”

He said: “Payment times are proving resilient across supply chains, pipelines on infrastructure and commercial projects are holding up well, and inflation for materials and labour looks to have passed its peak.”

But Mark Robinson, group chief executive of public procurement body Scape, warned that “unpredictable new business pipelines” remained a challenge for the sector.

He referenced news published by The Times last week that government departments had spent £24bn less than forecasted. Robinson said some businesses were hoping for a “last-minute public sector spending spree” in chancellor Jeremy Hunt’s budget next week.

But he warned it was “more likely” local authorities would be asked to deliver “real-term cost savings” across the board.

“Thorough planning and early engagement will therefore be crucial in continuing to deliver impactful regeneration projects that support the growth of regional economies,” he said.

Jones agreed that few people “expect the chancellor to pull any rabbits out of his hat”.

“[But] clarity around future projects, particularly in the regions, will give contractors the confidence they need to plan and invest in the future,” he said.

According to the PMI survey, business expectations did improve again, with around 46 per cent of  respondents expecting a rise in activity in the coming year and only 13 per cent predicting it would fall.

In particular, construction firms did note “signs of a recovery in client demand”, despite increasing interest rates and recession risks.