Construction data disappoints
5 October 2023
Data from the construction purchasing managers’ index (PMI) for September gathered by S&P Global and the Chartered Institute of Procurement & Supply (CIPS) show that total UK construction industry activity decreased for the first time in three months and at the fastest pace since May 2020.
All three main segments of construction work posted a reduction in business activity, led by a steep and accelerated fall in house building, the report says.
The overall index registered 45.0 in September, down from 50.8 in August and below the neutral 50.0 value for the first time since June. Residential work (index at 38.1) was the worst-performing area, followed by civil engineering activity (45.7). Aside from the pandemic, the latest fall in housing activity was the steepest since April 2009.
Survey respondents widely commented on cutbacks to house building projects amid rising borrowing costs and weak demand conditions.
Commercial building declined at only a modest pace (index at 47.7) after solid growth seen throughout the summer. Some firms noted that worries about the economic outlook had dampened client demand and led to a lack of new work to replace completed projects.
On a positive note, supplier performance improved at a robust rate. Delivery times for construction products and materials have now shortened in each of the past seven months.
Also, the number of construction firms predicting a rise in output over the year ahead (41 per cent) continued to exceed those forecasting a decline (17 per cent). This was linked to long-term business expansion plans and hopes of a turnaround in customer demand. However, the overall degree of confidence slipped to its lowest since December 2022 amid concerns about higher borrowing costs and weaker housing market conditions.
Dr John Glen, Chief Economist at the CIPS, said: “The impact of high mortgage rates and low house buying demand continues to flow through the supply chain and negatively hit the UK construction industry. It has been a tough year for residential construction and the sharp decline in September shows the pressure on the sector is still a long way from easing, despite the pause on the raising of interest rates.”
● While the September figures are disappointing, the fact that 41 per cent of the firms surveyed predict a rise in output over the next year is a positive factor. And, as reported on the blog, recent news of a number of hirers opening new depots and actively exploring acquisition opportunities suggests that there are still many opportunities, perhaps reflecting the diversity of the typical hirer’s customer base and the commercial flexibility that brings.
Photo: Rodolfo Quirós
