Reasons to be cheerful for construction sector despite dip in activity, says MHA advisor

The construction sector is poised for slow and steady growth in 2025 despite a fall in activity towards the end of 2024, according to a leading Lancashire-based sector advisor.

Joe Sullivan, partner and construction specialist at accountancy and business advisory firm MHA, was commenting after the release of the S&P Global Construction PMI (purchasing manager’s index) data for December 2024.

Construction output growth eased to a six-month low in December according to the PMI data, but business optimism rebounded from the 13-month low seen in the previous month.

Joe, who advises construction and real estate businesses across the region, said: “The fall in construction PMI is hardly surprising as while the industry continues to benefit from the government's investment in infrastructure, it is hampered by still historically high interest rates and an uptick in employment costs.

“Activity in the commercial sector remains strong, but housing has dipped. Whether the housing market will see a reversal in fortunes this year remains to be seen, however the opportunity to develop is clearly there given the planning reforms included in the recent NPPF.

“Overall, the construction industry has been relatively resilient in 2024 compared to other industrial sectors. Demand for construction is very much on a domestic level, whereas manufacturing and other industrial sectors are reliant on the global economy.”

Joe added: “From what our clients are telling us, 2025 is expected to be better than last year; however, it’ll be a slow burn. Infrastructure will do well given the government’s investment plans as will commercial as the UK is becoming an investment choice for many. Housing supply will be available but it’s whether demand will follow if interest rates remain stubbornly high.

“While high interest rates and increasing labour costs will continue to have an impact on the industry, an increased flow of inward investment should provide some relief.

“We expect that construction PMI will hover around the same level as it is currently for much of 2025, and any spikes are likely to be short-lived. Although growth will be slow and steady, the fundamentals for the sector are solid and there is an air of quiet optimism.”

The S&P Global UK Construction PMI is compiled by S&P Global from responses to questionnaires sent to a panel of around 150 UK construction companies.