Weak activity but strong prospects

UK construction companies indicated a sustained increase in business activity during September, but the rate of expansion slowed for the second month running, according to IHS Markit/Cips UK Construction Purchasing Managers’ Index (PMI).

At 52.1 in September, down from 52.9 in August, the seasonally adjusted index signalled the weakest upturn in output for six months.

Civil engineering was the worst performing sub- category of construction work, with activity declining at a slightly quicker rate in September. House building and commercial construction continued to increase at a solid pace, although the latest survey indicated weaker growth than in August. A number of firms suggested that subdued economic conditions so far in 2018 remained a factor holding back business activity growth.

In contrast to the trend seen for construction output, latest data pointed to a faster rise in new business volumes. The rate of new order growth picked up to its strongest since December 2016, which firms attributed to resilient demand and an upturn in new invitations to tender.

A robust rise in staffing numbers was reported in September, helped by another improvement in new order books. The latest increase in employment was the fastest since December 2015. Sub-contractor usage also increased at the fastest pace for over two-and-a-half years. Survey respondents noted that their own payrolls had been boosted by a larger than usual intake of trainees and apprentices in September. There were also some reports that tight labour market conditions had led to a strategic focus on long-term hiring policies.

Delivery times for construction products and materials continued to lengthen in September. Intense supply chain pressures were attributed to stock shortages at vendors and stretched transportation capacity. That said, the latest downturn in vendor performance was slightly less marked than the three-and-a-half year low seen during August.

Rising demand for inputs contributed to a sharp and accelerated increase in average cost burdens during September. The overall rate of input price inflation was the fastest for three months. Survey respondents widely cited higher fuel prices and greater raw material costs (particularly timber).

September data indicated a further decline in optimism about the year ahead business outlook. The degree of positive sentiment reported by survey respondents was the second-lowest since February 2013. Construction companies noted that political uncertainty and investor concerns about Brexit had dampened confidence in September. Where a rise in business activity was projected, forthcoming energy and transport projects remained the main areas of optimism.