Construction industry brace for slow recovery in 2024
According to the latest PMI data by S&P and CIPS, the headline construction PMI for November decreased slightly to 45.5, down from 45.6 in October. This latest fall was driven by a decrease in civil engineering and commercial activity, however new orders, future activity and housing activity all saw increases, a sign that the industry has finally reached a positive turning point after a year of shrinking pipelines.
Commenting on the data, Kelly Boorman, partner and national head of construction at RSM UK, said: ‘This month’s slight fall in the headline PMI to 45.5 reflects signs of stabilisation for the construction industry after a year of ongoing challenges, namely disruption to infrastructure projects and a slowdown in the housing market, which, coupled with the acute, long-term impact of interest rates and inflation had previously depleted the pipeline of work. But, more positively, the upticks in new orders, housing activity and future activity, plus the slight decrease in the availability of subcontractors implies there are reasons for cautious optimism as the industry braces for 2024.
‘In addition, last month’s Autumn Statement outlined the government’s intentions for planning reform and a fund to build 40,000 homes across Cambridge, London and Leeds. This will further stimulate the market, especially as national housebuilders have had to reduce their volume of plots and revise their targets amidst economic challenges and the scrapping of HS2. As a result, they have had to manage land impairment on their balance sheets and increased costs in 2021 and 2022 after purchasing land at its peak price, unable to generate the required profit margins. With the housing activity index seeing a slight three-month upward trend, housebuilders will start to build back profit margins towards Q2 2024.’
She added: ‘The government’s new planning reform, aimed at reducing backlogs and accelerating major applications, is a big step forward for the industry, which, coupled with interest rates freezing and enhanced mortgage availability in Q2 2024, could be the change in momentum businesses have been hoping for. That being said, challenges remain regarding infrastructure budget and allocated regional spend, so the industry will be poised for clarity from the government on the mobilisation of projects in Q1 and Q2 2024.’