Output grows for second month in a row despite weakening housing sector

Construction output had a second successive month of growth in March, although the rate of expansion in the sector eased as demand for residential work dropped off.

The latest S&P Global/CIPS UK Construction PMI figures published today show growth edged above the 50 no-change mark, driven by a moderate increase in new orders and a strong performance from civil engineering. The month’s index score of 50.7 was down from 54.6 in February.

Despite the mothballing of the Euston station site last month, work on HS2 helped make civil engineering was the fastest growing area (52.0) of construction in March.

Growth in overall output was held back by the housing sector, which experienced its fastest decline since May 2020. Survey respondents cited fewer tender opportunities due to rising borrowing costs.

Supply conditions improved but input prices continued to rise sharply attributed to elevated energy costs and rising staff wages.

Max Jones, director in Lloyds Bank’s infrastructure and construction team, said that despite the dip in the reading, contractors were heading into the spring with “cautious optimism”.

“Industry leaders have naturally expressed disappointment about recent HS2 announcements and the impact on the sector’s pipeline, however, infrastructure continues to provide a healthy orderbook,” he said.

Meanwhile, a report from the Building Cost Information Service has said little or no growth in the next few years coupled with persistently high inflation will create stagflation.

It said labour would be the main cost driver in the near term with pay rises matching rates for self-employed labour.