Some positive signs as construction activity rises at fastest rate for nine months in February
According to the latest PMI data by S&P and CIPS, the headline construction PMI rose to 54.6 in February, up from 48.4 in January and the highest monthly reading since May 2022.
Commercial work was the best-performing area in February (55.3), enjoying the steepest rate of expansion for nine months. Civil engineering activity also returned to growth in February (52.3), although the rate of expansion was only modest. Construction companies noted a fall in residential building work for the third consecutive month in February (47.4).
Total new work picked up in February with improved order books for the first time since November 2022. The data also shows construction companies reported signs of a turnaround in demand for commercial projects.
Thomas Pugh, economist at the leading audit, tax and consulting firm RSM UK, said: ‘The rebound in the construction PMI is more evidence of just how resilient the economy has turned out to be. But beware a false spring. We still expect the economy to fall into a mild recession in the first half of this year and the construction industry will be hit hardest by the 400bps increase in interest rates over the last year. As such, it probably won’t be long before the construction PMI resumes its downward trend.
‘The bounce back in the construction PMI in February, to its highest level since May, follows the rebound in the services and manufacturing PMIs. Undoubtedly, the economy has been much more resilient than expected given the cost-of-living crisis and the massive increase in interest rates. But the across the board rebound the PMIs last month should probably be taken with a pinch of salt.
‘The PMIs have not been the best indicator for real activity in the economy recently. Even taken at face value, the PMI so far in Q1 is only consistent with stagnation rather than a big improvement in growth. We still expect the economy to fall into a recession in the first half of this year. And the construction industry will be hit hardest by the 400bps increase in interest rates over the last year, meaning this resilience is unlikely to last.
‘That said, we expect this recession to be short and mild with the economy returning to growth in the second half of this year. So, while February’s data might represent a false spring, the real spring isn’t too far away.’