Why UK Construction Activity Rose at Fastest Pace in Three Months
On Tuesday, a survey conducted by S&P Global/Cips revealed that UK construction activity had grown at the fastest pace in three months, driven by growth in the commercial sector, which offset a sharp decline in construction. The survey, which measures monthly changes in total activity, rose to 51.6 in May, exceeding economists’ expectations of a 51.1 reading and surpassing April’s 51.1. Nonetheless, the residential PMI of 42.7 was the lowest in 14 years, excluding the height of the pandemic. S&P Global/Cips cites increased demand among corporate clients, the awarding of contracts on infrastructure projects, and civil engineering gaining momentum as reasons for the faster increase in new construction orders since April 2022. However, job losses on housing projects continued to dampen housing demand, falling for the sixth straight month and at the fastest pace since May 2020.
How Infrastructure Projects are driving Growth in UK Construction
The S&P Global/Cips survey revealed that commercial construction was the best performing category, with a PMI sub-index of 54.2 in May, up from 53.9 in April. This increase in activity is likely due to infrastructure investments such as road construction and hospital expansions that have helped boost construction demand among commercial firms. Some other contributing factors include:
● Low-interest rates and government incentives to promote business investment – these policies encourage borrowing, commercial development, and renewed confidence in businesses to invest financially.
● Changing consumer behaviors – with an increasing number of consumers spending time inside due to the pandemic, commercial developers are racing to create innovative spaces for work, leisure, and entertainment.
Despite the positive index readings, there are still concerns regarding the impact on residential and commercial activity due to the Bank of England’s expected interest rate hike in June. With high borrowing costs and rising costs of living, the construction sector could face tough times ahead.
Understanding the Importance of Supply Chain Management for Construction Companies
Supply chain management is a crucial aspect of any construction company, as it ensures a seamless flow of materials, labor, and equipment to and from construction sites. Good supply chain management plays a significant role in construction sustainability and can help construction companies maintain better control of their project timelines, budgets, and profit margins.
The pandemic has caused unprecedented volatility and disruption to the supply chain and exposed weaknesses that were often overlooked before the pandemic, such as:
● Congestion at ports, which has resulted in longer lead times to deliver essential construction materials.
● Shortages of raw materials, such as wood and steel that could delay construction timelines and increase project costs significantly.
To minimize the risks posed by such disruptions, construction companies must evaluate their supply chain management systems, identify potential fail points, and create strategic plans to address potential disruptions proactively.
Conclusion
In conclusion, while it is encouraging news that UK construction activity is increasing at the fastest pace in three months, the industry still faces significant challenges. Construction companies must be proactive in managing their supply chains, and policymakers must have clarity in their fiscal policies to promote economic growth while managing the negative impacts of external shocks. Nonetheless, it is essential to acknowledge the positive impact that infrastructure projects have had on the commercial sector, and there are opportunities to continue exploring new innovation in this space. By doing so, construction companies can contribute to the UK’s economic recovery, remain competitive in the global market, and provide jobs for the millions of people in the UK who work in this industry.
Summary
On Tuesday, a survey conducted by S&P Global/Cips revealed that UK construction activity had grown at the fastest pace in three months, driven by growth in the commercial sector, which offset a sharp decline in construction. The survey, which measures monthly changes in total activity, rose to 51.6 in May, exceeding economists’ expectations of a 51.1 reading and surpassing April’s 51.1. Nonetheless, the residential PMI of 42.7 was the lowest in 14 years, excluding the height of the pandemic. S&P Global/Cips cites increased demand among corporate clients, the awarding of contracts on infrastructure projects, and civil engineering gaining momentum as reasons for the faster increase in new construction orders since April 2022. However, job losses on housing projects continued to dampen housing demand, falling for the sixth straight month and at the fastest pace since May 2020.
Supply chain management is a crucial aspect of any construction company, as it ensures a seamless flow of materials, labor, and equipment to and from construction sites. To minimize the risks posed by supply chain disruptions, construction companies must evaluate their supply chain management systems, identify potential fail points, and create strategic plans to address potential disruptions proactively. Despite the positive index readings, there are still concerns regarding the impact on residential and commercial activity due to the Bank of England’s expected interest rate hike in June. With high borrowing costs and rising costs of living, the construction sector could face tough times ahead.
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UK construction activity rose at the fastest pace in three months, driven by growth in the commercial sector which offset a sharp decline in construction, according to a survey released on Tuesday.
The S&P Global/Cips construction purchasing managers’ index, which measures monthly changes in total sector activity, rose to 51.6 in May, up from 51.1 in April and above the neutral threshold of 50 for the fourth consecutive month.
The figure was higher than the 51.1 reading expected by economists polled by Reuters and the best since February.
Martin Beck, chief economic adviser to EY Item Club, a consultancy, said that alongside a final PMI of 55.2 for the services sector in May, released on Monday, data indicated it “now seems more likely that gross domestic product will grow in the second quarter”.
He added that the readings also increased the likelihood of a revert to “meaningful.” [economic] growth in the second half of this year”.
The S&P Global/Cips survey said that increased demand among corporate clients and the awarding of contracts on infrastructure projects supported the faster increase in new construction orders since April 2022. Commercial construction was the best performing category, with a PMI sub-index of 54.2 in May, up from 53.9 in April.
Matthew Pointon, senior real estate economist at consultancy Capital Economics, said the data suggests “developers think the worst decline in capital value is behind us and demand is recovering.”
Civil engineering also gained momentum, with a reading of 53.9, indicating the fastest growth in nearly 12 months. However, jobs on housing projects fell for the sixth straight month and at the fastest pace since May 2020, as worries about the impact of higher interest rates continued to dampen housing demand.
The residential PMI of 42.7 was the lowest in 14 years, excluding the height of the pandemic.
Tim Moore, chief economic officer at S&P Global Market Intelligence, said May data “highlighted a mixed picture in the UK construction sector as solid growth rates in commercial and civil engineering activity contrasted with a decline more marked in construction”.
The survey also showed a reduction in supplier lead times as supply disruptions eased. This has helped ease cost pressures across the construction sector, with the overall rate of purchase price inflation falling to its lowest level in nearly three years.
Economists have warned, however, that the construction sector continues to face the challenges of high borrowing costs and rising cost of living. Markets expect the Bank of England’s Monetary Policy Committee to hike interest rates further at its next meeting on June 22, a move that Beck said “will weigh on residential and commercial activity.”
https://www.ft.com/content/27bf8f04-7f81-4b3c-9058-49cc2703731c
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