UK Construction Sector Sees Fastest Growth in Two Years, PMI Reveals

LONDON (Reuters) – Last month, Britain’s construction sector experienced its most significant rise in activity in two years, including the first increase in house-building since the mini-budget of former Prime Minister Liz Truss, a survey revealed on Thursday.

The S&P Global UK Construction Purchasing Managers’ Index climbed to 54.7 in May from 53.0 in April, surpassing the median forecast for a drop to 52.5 in a Reuters poll of economists, and reaching its highest level since May 2022.

This upturn follows weak official data from the last quarter of 2023 and the first quarter of this year, where output fell by 0.9% in each period, marking the largest declines since mid-2021.

“Companies are preparing for further growth in the coming months, with renewed expansions in both employment and purchasing activity as workloads increase,” said S&P economics director Andrew Harker.

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The all-sector PMI – which includes data from the larger services and manufacturing sectors released earlier this week – fell to 53.1 from April’s one-year high of 54.0, due to slower growth in the services sector.

Activity in civil engineering, commercial construction, and housing all rose. House-building increased for the first time since October 2022, following the surge in borrowing costs and a sharp drop in house purchases caused by Truss’ budget plans.

“Companies attributed the increase in new orders to the securing of new contracts and the start of previously delayed projects,” S&P noted.

Raw material costs rose at their slowest pace this year, but the cost of subcontractors increased at the fastest rate in nine months.

The Bank of England is closely monitoring wage growth and service costs as it considers when to start cutting interest rates from their current 16-year high.

Financial markets have recently lowered their expectations for this and do not fully price in a first quarter-point rate cut until November.