Construction sector 'sources closer to home' to avoid Ukraine disruption

6 March 2023

UK construction activity rose at fastest rate for nine months in February – helping reverse two months of decline, according to the latest PMI.

A marked rebound in commercial work and civil engineering activity led a robust increase in overall business activity across the sector.

February saw the strongest rate of growth in the sector since May 2022 and the smallest number of supplier delays since January 2020. Overall purchase price inflation was the lowest for 27 months.

The S&P Global/CIPS UK Construction Purchasing Managers’ Index rose to 54.6 in February, up from 46.4 from January and above the neutral 50.0 threshold for the first time in three months.

The best performing area was commercial construction, which saw its steepest rate of expansion for nine months. A modest return to growth was also seen for civil engineering activity.

Construction companies, however, noted that residential building work had fallen for the third consecutive month.

Among the factors keeping residential market conditions subdued were elevated interest rates, while anticipation of weakening demand was also leading to slower new house-building activity.

Supply pressures continued to ease despite rising demand for construction products and materials. Vendor delivery delays were at their lowest in just over three years as demand and supply became further aligned.

This helped bring down input price inflation prices and ensured purchase prices increased at the slowest rates since November 2020.

Higher input costs were mostly linked to suppliers passing on rising energy bills and salary inflation, though increases were offset by lower transportation costs.

Around 46% of the survey panel anticipated a rising construction activity over the next year as business expectations continue to improve from the 31-month low seen in December 2022.

Only 13% of panel members believe there will be a decline in construction activity over the next year.

John Glen, chief economist at CIPS, said: “Supply deliveries were at their most improved since January 2020 and some commentators mentioned sourcing closer to home to avoid logjams in supply chains caused by China’s Covid policy and the war in Ukraine.

“New order levels were also at their highest since November 2022 but these strong numbers belie the fact that there is uneven growth in building activity in the UK.”

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