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Construction statistics show market volatility

4 November 2022

Construction statistics show market volatility

It was coincidental that the October statistics in the Construction Purchasing Managers’ Index (PMI) were released today – the day after the Bank of England announced the largest interest rate rise for three decades and suggested that Britain faces its longest (although some suggest shallow) recession since the 1920s. 

However, the survey findings compiled by S&P Global for the Chartered Institute of Procurement & Supply paint a mixed picture and show the construction industry’s ongoing volatility and unpredictability. 

On the positive side, the October data indicated that the UK construction sector gained momentum, with total industry activity rising at the fastest pace since May. However, despite signalling a solid recovery from the downturn seen this summer, construction companies indicated that growth expectations for the year ahead remained very subdued. 

The headline seasonally adjusted index, which measures month-on-month changes in total industry activity, posted 53.2 in October, up from 52.3 in September and the highest reading since May. Higher levels of business activity were attributed to a combination of new project starts and strong pipelines of unfinished work.

Commercial building was the best-performing category in October (index at 54.5), with output growth reaching a five-month high. Residential work also expanded (51.2) but at a softer pace than in September. 

Construction companies noted weaker confidence among clients, alongside headwinds from rising input prices and higher borrowing costs. Some firms also reported a drop in new work due to heightened political uncertainty – presumably due in no small part to former chancellor Kwasi Kwarteng’s disastrous ‘mini-budget’ on 23 September that led to maxi-turmoil on financial markets. 

Despite a turnaround in supply chain pressures, latest 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. This was 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.

Looking ahead, construction firms are relatively downbeat about their growth projections for the year ahead. Around 33 per cent of the survey panel anticipate a rise in business activity, while 26 per cent predict a decline. 

Those reporting positive sentiment in October often cited tender opportunities in niche markets or opportunities related to infrastructure spending, especially green energy projects.

So once again it has to be said: while the economic outlook remains challenging, there are still areas of opportunity to be explored by construction firms – and the tool hire companies serving them. 

Photo: Brett Jordan 


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