Strong February Performance Points to a Recovering Industry
An industry report shows the UK construction industry enjoyed a welcome boost in February. But there are still challenges ahead.
The ongoing weakness of the global economy combined with concerns over the implications of Brexit have spelled a difficult year or so for the UK’s construction sector. For the past three quarters, the sector has been in the grip of recession. However, a more successful February suggested that things might be on the cusp of improvement.
Construction is the third largest economic sector in the UK, and supports numerous other industries, including manufacturing, logistics, construction signs and so on. Its health can therefore be seen as something of a litmus test for the broader economy.
February boost
A report conducted on behalf of the Chartered Institute of Procurement and Supply showed that the Purchasing Manager’s Index (PMI) increased from 50.2 in January to 51.4.
The PMI measures changes in economic business conditions in a given industry from one month to the next. It uses survey data to assess conditions across a whole range of areas that include production, new orders, employment, prices, deliveries and the like.
A PMI above 50.0 indicates growth, while an index below 50.0 implies contraction.
February’s result signals the first rise that the PMI index has seen in three months and gives those within the industry some long-awaited good news. While it is too early to say the sector is in recovery, it is certainly a sign that the downturn is showing signs of easing off.
New commercial projects
The improved PMI was prompted by a sudden increase in commercial construction projects in February. This part of the sector saw its fastest expansion in almost a year – ironic, given that the slump in commercial activity was the leading contributor to the overall downturn last March.
The commercial sector, in particular, has been severely affected by Brexit. Many projects have been either cancelled or put on ice in the light of uncertainty over how their industries will be affected by Great Britain’s withdrawal from the European Union.
Residential projects remain strong
Despite a slight downturn over the opening months of 2018, the residential construction sector has remained generally buoyant. The Chancellor of the Exchequer’s pledge to build 300,000 new homes every year suggests that this area of the industry has a strong pipeline for the foreseeable future.
The only cloud on the horizon is in London, where Brexit concerns and increases in stamp duty have had an adverse impact on demand.
Difficult times ahead
While the February boost is good news for the industry, it is important not to read too much into it. The PMI can fluctuate significantly from month to month, so it is a case of watching and waiting to se if the improvements can be carried forward into March and beyond.
Meanwhile, the factors that caused the recession in the first place have not gone away, so it seems unlikely that the industry is completely clear of the dark times just yet.