UK Construction Sector Shows Signs of Recovery Amid Price Pressures

UK Construction Sector Recovery

LONDON, Feb 5 (Reuters) - Britain's construction sector showed signs at the start of the year that it might be past the worst of a slump, as recent interest rate cuts and less of a decline in new work raised hopes of a turnaround, a survey showed on Thursday.

The S&P Global/CIPS UK construction Purchasing Managers' Index (PMI) rose to 46.4 in January from December's 40.1, which was just above a 5-1/2 year low.

Thursday's reading was the highest since May 2025 and well above a median forecast of 42.0 in a Reuters poll of economists. But it remained below the 50.0 growth threshold for the 13th month in a row - its longest unbroken period of contraction since the global financial crisis of 2007-09.

The wider all-sector PMI, which includes previously released services and manufacturing figures, rose to its highest since August 2024 at 53.1 from December's 50.4.

Market Conditions and Confidence

"January data provided encouraging signs that the UK construction sector has exited its tailspin, and firms are becoming more hopeful that new projects will get back on track in 2026," Tim Moore, economics director at S&P Global Market Intelligence, said.

Relief at improved market conditions, supported by lower borrowing costs, was commonly cited as a factor supporting confidence and sales pipelines in January.

Cost Pressures in Construction

However, construction companies said their costs rose at the fastest pace since September, driven by higher wages and costs for cement, concrete, steel and other raw materials.

The Bank of England is expected to keep its main interest rate at 3.75% on Thursday after cutting rates four times in 2025, while investors are pricing in one or two more reductions in borrowing costs this year.

Some firms said clients were now signing contracts which they had put on hold in the run-up to finance minister Rachel Reeves' November budget, and expectations for future construction activity were the strongest since May 2025.

The survey chimed with data from the Royal Institution of Chartered Surveyors, also published on Thursday, that showed a brighter outlook for the construction sector.

Sector Performance Overview

The construction PMI showed residential house-building was the biggest drag on activity although the pace of decline was the smallest since October last year.

The smallest decline was in the commercial sector - which like house-building had shrunk by the most since the COVID-19 pandemic in December - while civil engineering also shrank by less than in December.

Overall new orders and employment in January fell but by a smaller amount than in the month before.

(Reporting by Suban Abdulla; Editing by Hugh Lawson)