Pound Sterling Today: UK Construction PMI Signals Deepening UK Slowdown

The British Pound held relatively steady against the Euro and U.S. Dollar despite a sharp deterioration in UK construction sector sentiment, as markets continued to focus on the outlook for Bank of England interest rates.

UK construction activity weakened sharply in April, with the S&P Global/CIPS Construction PMI falling to 39.7 from 45.6 in March, far below market expectations and firmly in contraction territory.

Pantheon Macroeconomics said the sector had been hit hard by surging energy costs and expectations for higher borrowing rates.

“Construction sentiment craters,” Pantheon said, though it added that “the misery looks overdone”.

The consultancy estimates the latest survey is consistent with construction output falling by around 2.5% on a three-month basis, marking a clear downside risk for second-quarter growth.

Civil engineering activity deteriorated particularly sharply, while housebuilding remained weak despite a small improvement from March levels.

New orders and employment also weakened further, with firms cutting staff numbers at a faster pace as project pipelines deteriorated.

At the same time, cost pressures intensified dramatically. The input price balance surged to its highest level since June 2022 as higher fuel and energy costs fed rapidly through the sector.

Pantheon warned that construction activity is likely to remain weak until the Bank of England eventually returns to cutting rates, something it does not expect before 2027.

However, the consultancy also suggested that the scale of the deterioration may partly reverse if recent declines in oil and gas prices are sustained.

Some underlying housing market indicators have remained relatively stable, including mortgage approvals and house prices, implying the survey may overstate the degree of underlying weakness.

For Sterling, the report offered a mixed signal. Weak construction activity points to softer growth ahead, but persistent inflation pressures and elevated input costs continue to support expectations that UK interest rates may stay higher for longer.

That rate outlook has remained an important support for the Pound in recent weeks despite mounting concerns over the broader UK economy.