The October construction PMIs signal momentum in the UK, as total industry activity rises at the fastest pace since May despite economic uncertainty
The October construction PMIs showed higher levels of business activity in September and the highest readings since May.
The headline seasonally adjusted S&P Global / CIPS UK Construction Purchasing Managers’ Index® (PMI®) – which measures month-on-month changes in total industry activity – posted 53.2 in October, up from 52.3 last month.
Political and economic instability were major influences on rates of activity
Civil engineering activity decreased for the fourth consecutive month(48.5), but residential work expanded to 51.2, albeit at a softer pace since September.
Commercial building was the best performing category in October with output growth reaching a five-month high.
Construction companies observed weaker confidence amongst their clients, ahead of a turbulent economic forecast and political uncertainty. Total new orders decreased in October after a 28 month period of sustained expansion.
Supply chain issues are decreasing, though costs are rising
Supply chain performance appears to be improving, as the seasonally adjusted Suppliers’ Delivery Times Index was above its pre-pandemic average, which suggested that supply shortages and transport delays have eased considerably in comparison to the low point seen last year.
Instances of longer delivery times were the fewest since February 2020.
However, data signalled another steep increase in average cost burdens across the construction sector.
Higher purchasing prices were overwhelmingly linked to greater energy costs, fuel bills and the pass-through of rising wages and was only partly offset by softer commodity price pressures.
Measured overall, the rate of input cost inflation eased slightly since September and was the lowest for 20 months.
The October construction PMI’s found that employment remains steady but slow
Rising construction output consequently increased input buying and staff hiring during October.
However, survey respondents noted that weaker demand contributed to a slowdown in the rate of job creation since September.
Higher levels of business activity were attributed to a combination of new project starts and strong pipelines of unfinished work.
Firms are relatively downbeat about their growth projections for the year ahead
Around 33% of the survey panel anticipate a rise in business activity, while 26% predict a decline.
The resulting index signalled the lowest degree of optimism since May 2020.
Many companies commented on recession worries and a drop in UK economic prospects due to rising political volatility.
Meanwhile, those reporting positive sentiment in October often cited tender opportunities in niche markets or opportunities related to infrastructure spending (especially green energy projects).
The UK is entering a recession which will stunt future growth
Tim Moore, economics director at S&P Global Market Intelligence, which compiles the survey, said:
“Construction output has staged a modest recovery after the downturn seen through much of this summer, with growth hitting a five-month high in October. Commercial work was the best-performing area of activity as delayed projects moved forward, while increased house building also provided a positive contribution to overall workloads.
“However, the forward-looking survey indicators highlight that growth will be harder to achieve in the coming months as rising borrowing costs, economic uncertainty and cost constraints all had a negative influence on order books in October. The reduction in total new work was the first since May 2020 and this fuelled increased concerns about longer term tender opportunities.
“Business optimism regarding the year ahead slumped in October and was by far the weakest since the early pandemic months. Construction firms cited concerns about a broad-based decline in client demand due to cutbacks on non-essential spending among clients, although some noted that growth linked to green energy projects, planned infrastructure spending and success in niche markets could help to offset the UK economic headwinds.”
Rising at the fastest rate in six months
Dr John Glen, chief economist at the Chartered Institute of Procurement & Supply, said:
“The construction sector offered a small improvement in output compared to September, maintaining its place in growth territory and rising at the fastest rate for almost six months. However, this positive result offered little in terms of comfort even though purchasing activity also rose and supply chain performance returned to near-normal levels, the sector remained under pressure from all sides.
“New business levels dropped for the first time since May 2020 so this momentum in output levels mostly came from projects in hand or those delayed rather than fresh assignments. Job creation was maintained so builders were able to complete unfinished work, but salary demands along with higher energy costs stripped away margins with inflationary pressures still high.
“The housing sector lost some of its momentum creeping closer to the no-change mark and sitting in a precarious position as the recent interest rate rise will impact on affordability rates for new homes in the months ahead. The UK is entering a recession and higher borrowing costs are intensifying these challenges, which combined to drag down builder optimism about the year ahead to its lowest level since May 2020.”
Industry thoughts on the October construction PMIs
Fraser Johns, Beard finance director said: “Against a backdrop of continued economic uncertainty, it’s positive to see momentum within the UK construction sector, with activity continuing to rise. This resilience is thanks in large part to commercial building, and certainly mirrors the developments and projects we’re working on here at Beard.
“While supply chain pressures may have softened ever so slightly and recruitment improved, there’s still challenges on the horizon such as prolonged inflation impacting both material and energy costs. With the higher cost to borrow and tighter access to credit, it doesn’t come as a surprise to see a drop in confidence or the number of new orders, which looks likely to continue over the coming year.
“As ever, forging strong relationships and maintaining an open dialogue between all stakeholders will be absolutely vital in navigating the challenges we all face. It’s important we remain adaptable to deal with the obstacles in our path and to prepare ourselves for a possible drawn out recession, albeit shallower than previously feared.”
