Construction activity rises slightly in October, but optimism falls to lowest for almost five years

UK construction companies signalled that business conditions remained subdued during October. Output growth was largely confined to house building, which partly offset lower volumes of civil engineering and commercial activity.

Moreover, the balance of construction firms expecting an increase in business activity over the next 12 months eased to its weakest since December 2012.

Caution in terms of the outlook for construction workloads meant that employment numbers increased at one of the slowest rates seen over the past four years.

At 50.8 in October, up from 48.1 in September, the seasonally adjusted IHS Markit/CIPS UK Construction Purchasing Managers’ Index (PMI) moved back above the 50.0 no-change mark. However, the latest reading was weaker than the post-crisis trend (54.7) and signalled only a marginal rise in overall construction output.

Commercial building decreased for the fourth month running in October, which survey respondents liked to worries about the UK economic outlook and subsequent delays to decision-making among clients.

Civil engineering was the worst performing sub-category, with some firms citing a lack of big- ticket infrastructure projects to replace completed contracts.

A solid increase in residential building work underpinned the slight upturn in overall construction output during October. The latest rise in housing activity was faster than in September, but still subdued in comparison to the average for 2017 to date.

October data pointed to a marginal increase in new work across the construction sector, thereby ending a three-month period of decline. However, the rate of new order growth remained weaker than recorded at any time from mid-2013 to early last year. Survey respondents generally cited fragile client demand, with heightened economic and political uncertainty acting as a brake on growth.

The index measuring construction firms’ expectations for business activity over the year ahead signalled that optimism dipped to a 58-month low in October. Anecdotal evidence widely linked the drop in confidence to concerns about UK economic prospects and a lack of new projects in the pipeline. As a result, job creation remained subdued in October and input buying increased only marginally.

Intense supply chain pressures were recorded again in October, driven by low stocks and constrained capacity among vendors. Some firms noted that a recovery in demand for construction products across the euro area had added to cost pressures, alongside the weaker sterling exchange rate. Input prices increased sharply, but the rate of inflation remained softer than the near six-year peak seen at the start of 2017.

Duncan Brock, director of customer relationships at the Chartered Institute of Procurement and Supply, said: “Though construction orders have shown a small improvement for the first time in four months, the sharp fall in business confidence will send a chill down the spine.”

He continued: “Any heavy reliance on residential building alone would be foolhardy with interest rate rises on the horizon and availability of skilled workers lacking in the sector, unless the Chancellor pulls a rabbit out of the hat and supports the training of new construction workers, the pound recovers some stability, and a surge of supply capacity become available.”