The latest RICS UK Construction Monitor has revealed a modest improvement in forward-looking sentiment in the UK construction industry, although the broader picture remains subdued.
The headline workloads indicator recovered some ground, registering a net balance of -4% in Q2, an improvement on -12% in Q1 but still leaving the series in negative territory for a fifth straight quarter.
The improvement in Q2 can be characterised as a partial unwinding of the sharper deterioration seen in Q1 rather than the emergence of clear underlying momentum.
Infrastructure continues to be the most resilient part of the market, but conditions across the main private sectors remain challenging. Cost expectations, while more moderate than in Q1, remain elevated by historical standards.
Within the infrastructure segment, workloads strengthened across most sub-sectors compared with Q1, reinforcing the sector’s position as the strongest part of the UK construction market. Energy remained the leader, with the net balance rising to +39% (from +24%), while water and sewage was firm at +23% (up from +20%). Communications strengthened to +22% (compared with +8% in Q1), and rail moved into positive territory at +10% (from -3%). The net balance reading for roads edged higher to +7% (up from +3%).
Credit conditions saw a notable improvement in forward-looking readings compared with Q1, even though views remain negative. The three-month-ahead reading rose to -21% (from -51%), and the twelve-month-ahead reading to -13% (compared with -42%). The improvement suggests respondents no longer see the same intensity of financial market stress as they did three months ago, consistent with a partial normalisation in inflation expectations since the peak of the Q1 shock.
The proportion of survey participants pointing out labour shortages edged up to 36% (from 34%), while shortages of materials rose to a share of 25%, up from 18%, consistent with commentary pointing to lingering supply chain pressures.
Materials costs are expected to increase by 6.7%, down from 7.5% previously. Skilled and unskilled labour cost growth expectations were broadly stable at 5.2% and 3.9% respectively. Even with this moderation, projected cost increases remain elevated by historical standards.
Twelve-month workload expectations moved back into positive territory in Q2, with the headline metric rising to a net balance of +13% (from +2% in Q1). The improvement was evident across all sectors, although the readings continue to point to only modest growth. Infrastructure continues to lead the outlook, with the twelve-month expectations net balance increasing to +34% (versus +19%), reinforcing its role as the key growth driver over the year ahead.
RICS Chief Economist, Simon Rubinsohn, said: “The latest results continue to demonstrate the ongoing challenges facing much of the construction industry. Rising material costs are exacerbating existing financial hurdles and being reflected in further pressure on profit margins. Infrastructure continues to show a degree of resilience with workloads benefiting from a number of substantive projects.
“However, there is little evidence of any improvement in sentiment in the housebuilding sector highlighting the predicament the new prime minister faces in trying to reignite building activity and oversee a sharp uplift in the delivery of social housing. Aside from the headwinds provided by viability, respondents are continuing to point to regulatory barriers impeding the development timeline with problems around the Building Safety Regulator still being frequently cited despite some improvements in the process.”
