(Bloomberg) -- The construction of UK homes grew at its fastest pace in almost two years in August, as lower borrowing costs gave a boost to the Labour government’s housebuilding promises.
Overall construction activity expanded for a sixth straight month, with the S&P Global’s Construction Purchasing Managers’ Index at 53.6 in August. While that’s slightly lower than last month’s 55.3, and below analyst expectations, it’s above the key 50 threshold that signals growth.
“The UK construction sector appears to have turned a corner after a difficult start to 2024, with renewed vigour in the housebuilding segment the most notable development in August,” said Tim Moore, economics director at S&P Global Market Intelligence.
The figures will be good news for Prime Minister Keir Starmer who put a plan to build more homes at the center of his appeal to voters, unveiling an ambitious target to construct 1.5 million new dwellings over the next five years.
Residential property was the only construction sub-sector where growth accelerated in August, with activity rising the most since September 2022. That uptick came after Bank of England policymakers eased borrowing costs for the first time since the pandemic and after the new Labour government announced a revamp of planning rules to encourage construction.
“House prices and transactions have passed the bottom and are starting to recover, which will bolster firms’ confidence in building,” said Peter Arnold, chief economist at EY UK. “The new government’s focus on housebuilding as a key pillar of its growth plan is also likely to be supporting confidence, although capacity constraints, particularly in terms of the availability of staff with the appropriate skills, will need to be overcome.”
The return of political stability after the general election helped support construction activity growth, according to the firms surveyed by S&P. They reported an increase in sales inquiries and a boost in new orders, with commercial activity the best-performing sector in August.
“Improving sales pipelines and a turnaround in demand conditions led to a relatively strong degree of business optimism across the construction sector,” Moore added.
Still, the survey revealed worries about public sector budgets and long-term infrastructure spending.
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