Construction Sector Growth Eases in October

CONSTRUCTION OUTPUT growth slowed considerably across the UK’s construction sector after reaching a 29-month high during September.

The latest S&P Global UK Construction Purchasing Managers’ Index (PMI) – tracking changes in total industry activity – registered 54.3 in October, down from 57.2 in September.

However, the index was above the crucial 50.0 no-change threshold for the eighth month running. The latest reading was also well above the average seen in the first half of 2024 (51.4) and signalled a solid expansion of total industry activity.

Civil Engineering

Civil engineering (56.2) was by far the best-performing category of construction output in October. Survey respondents again noted rising demand across a range of energy infrastructure projects, especially renewables.

Commercial Work

Commercial work (52.8) also expanded in October, but the increase was the weakest since the current period of growth began in April.

Housebuilding

Housebuilding (49.4) was the only broad category of construction work to register an overall decline in output during October. This was the first decrease in residential activity since June, but the rate of contraction was only marginal. Some construction companies noted that elevated borrowing costs and uncertainty ahead of the Autumn Budget had constrained demand.

Total New Work

Total new work expanded at a solid pace in October. Mirroring the trend for output growth, the latest expansion was softer than the two-and-a-half year high seen in September. Political uncertainty and subdued household demand due to cost of-living pressures were cited as factors limiting new order growth in October.

That said, many construction companies noted strong sales pipelines and tender opportunities linked to generally improving domestic economic conditions.

Recruitment

Higher levels of new business encouraged additional staff recruitment in October. Moreover, the rate of job creation accelerated to a three-month high.

Greater demand for staff was recorded in spite of a decline in business optimism regarding growth prospects for the year ahead. Latest data indicated that construction companies were the least confident about their output growth projections since December 2023.

Purchasing Activity

Construction companies continued to boost their purchasing activity in October, which was mainly linked to greater workloads and forthcoming new project starts. However, the latest increase in purchasing activity was only marginal and the weakest since the current phase of expansion began in May.

Delivery Times

Suppliers’ delivery times improved marginally in October. Lead times have now shortened in each of the past three months, which was often linked to rising inventories among suppliers. Some construction firms noted that international shipping disruptions had limited the latest improvement in vendor performance.

Average cost burdens meanwhile increased at a solid pace. The rate of inflation remained stronger than seen on average in the first half of 2024, but moderated since September. Survey respondents typically commented on higher raw material prices. Many firms suggested that an improved balance between supply and demand for construction inputs had led to increased competition between suppliers and helped to limit overall cost pressures.

COMMENT

Tim Moore, S&P Global

Tim Moore, Economics Director at S&P Global Market Intelligence, said: “The construction sector signalled another month of solid output growth in October, despite being unable to match the highs seen in September. Business activity expansion was once again led by civil engineering work. Survey respondents widely commented on strong demand for renewable energy infrastructure projects.

“Commercial construction activity also increased again, albeit at the slowest pace since the current phase of expansion began in April. Improving domestic economic conditions helped to boost demand, but some construction companies reported delayed spending decisions ahead of the Autumn Budget.

“October data meanwhile indicated a decline in overall residential construction activity for the first time since June. Government policy uncertainty, fragile consumer confidence and elevated borrowing costs were all constraints on demand for house building projects.

“Total new work expanded at a solid pace in October, adding to signs of a robust improvement in order book pipelines across the construction sector in the second half of 2024. As a result, construction companies added to their payroll numbers at an accelerated pace. However, business optimism remained relatively subdued in comparison to the highs in the first half of the year, with output growth expectations now the lowest since December 2023.”

INDUSTRY RESPONSE

Firm Footing

Brendan Sharkey, MHA

Brendan Sharkey, real estate and construction specialist at MHA, comments: “Following last month’s spike in activity, it was expected that construction PMI would decrease this month. However, the industry has been steadily growing since April of this year, with PMI remaining above 50, suggesting that the construction industry is on a firm footing.

“The Budget will have come as welcome news broadly to the construction industry. It has kickstarted a programme for much-needed affordable housing and infrastructure as Rachel Reeves has highlighted both areas as a priority.”

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