HS2 keeps business activity up as material supplies greatly improve

HS2 helped construction activity rise in March, while materials availability massively improved, according to the latest Purchasing Managers’ Index (PMI) data.

The rail megaproject was cited for the boost in civil engineering work – the fastest-rising category in the sector for the month, according to the survey compiled by S&P Global and the Chartered Institute of Procurement and Supply (CIPS).

The boost came in the same month that the government announced it was to delay the delivery of HS2 phase 2a amid rising cost pressures, and Mace chief executive Mark Reynolds warned that this would lead to supply chain redundancies.

The PMI rating, based on a monthly survey of 150 construction firms, stood at 50.7 in March, down from 54.6 the previous month. Any score above 50 indicates an increase in activity. The results contrast with research from construction intelligence firm Glenigan, which warned that starts on projects over £100m were at a 10-year low last month.

Commercial building activity also rose in March, but homebuilding activity remained low, with volumes decreasing for the fourth month in a row and at their fastest rate since May 2020.

Purchasing managers told the survey that there was better availability of construction products and materials, as well as fewer logistics bottlenecks. Delivery times from suppliers improved at their fastest rate for more than 13 years, although prices remained high.

This reflects a statement released earlier this week by the Construction Leadership Council’s product-availability group, which noted good availability for the vast majority of building products, with the exception of plasterboard.

That update, from John Newcomb, chief executive of the Builders Merchants Federation, and Peter Caplehorn, chief executive of the Construction Products Association, said timber prices had returned to pre-Covid levels, and that structural steel and rebar prices had fallen in the first quarter of 2023.

However, they noted: “Price inflation remains the number one issue. While prices are not rising as quickly as they have been, they are still substantially higher than 18 months ago and profit margins are being squeezed. This is particularly concerning for SME builders and regional housebuilders.”

The PMI survey, meanwhile, found that an increase in workloads across the sector had led to the fastest rate of job creation since October, although some companies reported that they were struggling to fill vacancies and were feeling pressure on wages.

S&P Global Market Intelligence economics director Tim Moore said: “UK construction companies experienced a sustained rebound in output levels during March, as work on civil engineering and commercial projects picked up for the second month running.

“Improved tender opportunities were also reflected in an upturn in new orders since February and the strongest rate of job creation for five months.”

CIPS chief economist John Glen said the overall PMI score showed the sector “is heading in the right direction and at a stabilising pace”.

He added: “Delivery times from suppliers improved at the fastest rate since November 2009, as stocks were unravelled and fewer orders from supply chain managers meant goods got through more quickly.

“With residential building still struggling, and falling at the fastest rate since May 2020, it was the bigger projects like HS2 managed by the civil engineering sector that added fuel to the engine of construction growth this month.”