Seven construction workers looking over construction site on a sunny day

UK construction more optimistic as industry anticipates rate cuts

By Peak Editorial Team on February 6, 2024 - 5 Minute Read

In a recent survey, British construction companies have shown an unexpected rise in optimism, marking the highest level of confidence in two years. This uptick in optimism stems from expectations of potential interest rate cuts, signaling a possible turnaround for the sector. Despite lingering challenges such as rising material costs and disruptions in shipping, experts note a positive shift in sentiment, with industry players cautiously optimistic about the future.

British construction firms expressed their highest level of optimism in two years, buoyed by expectations of interest rate cuts that could potentially revitalize the sector, according to a survey released Tuesday (Feb 6).

The S&P Global/CIPS UK Purchasing Managers’ Index, a key measure of activity in the construction industry, climbed to 48.8 in January from 46.8 in December, marking its most robust reading since August 2023, albeit still indicating stagnation.

Economists surveyed by Reuters had anticipated a more modest increase to 47.3.

Tim Moore, Economics Director at S&P Global Market Intelligence, noted that customer demand appeared to be on the cusp of improvement as the economy rebounded from a sluggish end to 2023.

UK construction companies are growing increasingly optimistic that the worst may soon be behind them as recession risks recede and the prospect of interest rate cuts looms closer

Tim Moore

Economics Director at S&P Global Market Intelligence

“UK construction companies are growing increasingly optimistic that the worst may soon be behind them as recession risks recede and the prospect of interest rate cuts looms closer,” Moore remarked.

Construction firms cited elevated shipping costs as a factor driving up prices for raw materials, marking the first such increase since September last year. Delays in shipping, particularly in the Red Sea, have been observed, impacting deliveries to British manufacturers.

The findings of Tuesday’s PMI survey were echoed by data from the Royal Institution of Chartered Surveyors (RICS), released last week, which indicated a more positive outlook for the construction industry.

S&P Global highlighted that residential house-building remained a significant drag on activity, though the pace of decline was the slowest since March the previous year. Output in civil engineering neared stabilization, and commercial building contracted at a lesser rate compared to December.

The overall growth in new orders recorded its most modest decline since contracting began in August 2023, with employment experiencing only a slight reduction.

The broader all-sector PMI, which incorporates previously published figures for services and manufacturing, reached its highest level in eight months at 52.6, up from December’s 51.7.

Key information:

  • PMI: The Purchasing Managers’ Index is an economic indicator derived from monthly surveys of private sector companies. It provides insights into the health of an economy, particularly in sectors such as manufacturing and services, by measuring factors such as new orders, employment, and production levels.
  • S&P Global/CIPS UK Purchasing Managers’ Index: This specific PMI is focused on the UK’s construction industry and is compiled by S&P Global in collaboration with the Chartered Institute of Procurement & Supply (CIPS). It tracks changes in activity levels, new orders, prices, and employment within the construction sector.
  • Royal Institution of Chartered Surveyors (RICS): RICS is a professional body for qualifications and standards in land, property, infrastructure, and construction. Their surveys and reports provide insights into trends and developments within the construction and real estate sectors.

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