Construction sector grows at fastest pace for two years

The industry recorded its fifth consecutive month of growth as it benefited from a rebound in new housing projects.

A return to growth for housing projects helped drive strong growth in the construction sector (Andrew Matthews/PA) (PA Archive)

The UK’s construction sector grew at its fastest pace for more than two years, according to the latest data.

The industry recorded its fifth consecutive month of growth as it benefited from a rebound in new housing projects.

The latest S&P Global construction purchasing managers’ index (PMI) scored 55.3 in July, jumping from 52.2 in June.

Any score above the 50.0 threshold indicates that activity in the industry is increasing, while anything below means it is shrinking.

As with the manufacturing and services surveys, the 2024 General Election appears to have injected some month-to-month volatility into the construction survey results, with a soft June followed by a stronger July as uncertainty cleared

Peter Arnold, EY UK

It was significantly ahead of the 52.5 reading predicted by a consensus of economists.

It came after a slight slowdown in growth in June, which had been blamed on caution among firms to commit heavily to projects as they awaited the outcome of the General Election.

The survey found growth accelerated in July, with particular improvement in housebuilding, which is expected to buoyed by increased targets for new homes from the Labour Government.

Andrew Harker, economics director at S&P Global Market Intelligence, said: “The election-related slowdown in growth seen in June proved to be temporary, with the pace of expansion roaring ahead in July.

“Firms saw the strongest increases in new orders and activity since 2022 as paused projects were released amid reports of improved customer confidence.”

The report showed that all the three key parts of the construction sector: housing, commercial building and civil engineering, grew in July.

The fastest increase was witnessed in civil engineering, which saw the sharpest growth for two-and-a-half years.

Housebuilders also saw growth improve, with new housing projects returning to growth after a recent slump driven by high interest rates.

Firms said there was a general improvement in market demand over the month, with many suggesting that customer confidence had strengthened, allowing previously paused projects to restart.

Rising workloads also led construction firms to expand purchasing activity and take on more workers.

Meanwhile, increased demand “put pressure on suppliers” during the month and led input cost inflation to pick up slightly.

Mr Harker added: “The strength of demand moved the sector closer to capacity, bringing a recent period of improving supplier performance to an end.

“There were also signs of inflationary pressures picking up, something that will need to be watched closely if demand strength continues in the months ahead.”

Peter Arnold, EY UK’s chief economist, said: “As with the manufacturing and services surveys, the 2024 General Election appears to have injected some month-to-month volatility into the construction survey results, with a soft June followed by a stronger July as uncertainty cleared.

“The detail of July’s survey was also positive, with new orders growing at the strongest pace in more than two years, and hiring and purchasing activity also increasing.

“After a challenging couple of years, the construction sector appears to be in the early stages of a strong recovery.”