Business activity in the construction sector expanded at its fastest pace in over a year in April, but housebuilding continued to struggle, a new survey shows.
Looking across the construction sector as a whole, S&P’s purchasing managers’ index (PMI) recorded 53.0 in April, up from 50.2 in March and well ahead of expectations. Anything above 50 indicates growth.
Of all the sub-sectors, activity in the commercial sector increased at the fastest pace, with a score of 53.9. Survey respondents noted a turnaround in customer demand, in part driven by refurbishment projects.
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Civil engineering activity meanwhile expanded at its strongest pace for nine months at 53.6.
“Demand was boosted by greater confidence regarding the broader UK economic outlook,” Tim Moore, economics director at S&P Global Market Intelligence said.
“Commercial construction outperformed in April and civil engineering also provided a solid contribution to overall growth”.
However, high interest rates and “sluggish” market conditions continued to weigh on housebuilding. The housebuilding survey fell to 47.6, its fastest rate of decline since January.
Housebuilding has come under pressure over the past couple of years due to the impact of higher interest rates. The benchmark Bank Rate currently stands at a post-financial crisis high of 5.25 per cent.
At the turn of the year, markets thought the Bank of England would rapidly unwind its bout of monetary tightening which supported a recovery in housebuilding. However, since then traders have pared back their bets on cuts, which has put up the cost of mortgages.
“The tick up in mortgage rates since the start of the year is weighing on demand for new homes,” Matthew Pointon, senior property economist at Capital Economics said.
Despite sustained rises in output and new work, the latest survey pointed to another marginal reduction in employment numbers. Lower staffing levels were often linked to the non-replacement of voluntary leavers due to cost pressures and the completion of major projects.
Optimism in the year ahead edged up in April, with nearly half of the survey panel anticipating a rise in output over the next year. Respondents commented on improving sales enquiries and hoped for interest rate cuts.