Construction industry steadying but road ahead remains bumpy, says MHA sector expert

Confidence in the region’s construction sector is likely to remain shaky in the months ahead, despite signs the downturn in construction activity is slowing.

That’s the view of Joe Sullivan, construction and real estate partner at accountancy and advisory firm MHA.

Joe was speaking after the release of S&P Global’s UK Construction Purchasing Managers’ Index (PMI) data for March.

The influential index, which tracks changes in total industry activity based on survey responses from 150 UK construction firms, was at 45.6 in March, up from 44.5 in February but still well below the neutral 50.0 value for the fifteenth month running.

Joe commented: “The slight uptick in Construction PMI suggests the sector is steadying but not bouncing back. Any small improvement is likely due to reduced weather disruption. Overall, demand still looks weak and many projects are being pushed back rather than kicked off.

“The market is still split. Infrastructure is holding up better, while housebuilding remains the weakest sector and is most sensitive to interest rates hikes. Even if house prices are edging up, the outlook is still uncertain, higher energy costs and changes in mortgage rates can quickly hit confidence and affordability.”

Commenting on some of the current challenges for the construction sector, Joe added: “Cost and delivery risks are also rising again. The inevitable increase in cost of materials due to the war in the Middle East, the rise of minimum wage and labour pressures are squeezing margins, especially on fixed price contracts. At the same time, extra regulation and longer waits between planning approval and starting on site are slowing activity and making firms more careful about investing.

“Looking ahead, we expect a bumpy few months. On some projects, especially larger commercial ones, the numbers are tight, build costs are much higher and funding may become harder to secure. That means more redesign, value engineering and phased delivery. A sustained lift will depend on stronger new orders and steadier expectations for interest rates and input costs.”