LONDON, Feb 6 Reuters British construction firms turned their most optimistic in two years as the prospect of interest rate cuts raised hopes of a turnaround in the sector, a survey showed on Tuesday.

The SP GlobalCIPS UK Purchasing Managers39; Index39;s headline measure of the construction industry improved to 48.8 in January from 46.8 in December, its highest since August 2023 although still in nogrowth territory.

Economists polled by Reuters had forecast a smaller rise to 47.3.

Tim Moore, Economics Director at SP Global Market Intelligence, said customer demand appeared close to turning a corner as the economy picked up after a weak end to 2023.

UK construction companies seem increasingly optimistic that the worst could be behind them soon as recession risks fade and interest rate cuts appear close on the horizon, Moore said.

Construction firms said higher shipping costs pushed up prices paid for raw materials for the first time since last September.

There have been signs in other surveys that disruption to shipping in the Red Sea has delayed deliveries to British manufacturers.

Tuesday39;s PMI survey chimed with data from the Royal Institution of Chartered Surveyors, published last week, that showed a brighter outlook for the construction sector.

SP Global said residential housebuilding continued to be the biggest drag on activity although the pace of decline was the softest since March last year.

Output in civil engineering was close to stabilisation and…