UK construction growth falls to five-month low

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Construction companies in the UK reported a sustained recovery in output volumes during October, as the rate of expansion grinds to a halt

The seasonally adjusted IHS Markit/CIPS UK Construction Total Activity Index fell from 56.8 in September to 53.1 in October.

Housebuilding was by far the best-performing area of construction activity in October (index at 62.4) and the speed of recovery eased only slightly since September.

Survey respondents commented on pent up demand and a boost from improving housing market conditions in recent months.

Higher levels of overall construction work also reflected another rise in commercial activity (index at 52.1), although the latest expansion was the weakest for five months.

While civil engineering activity (index at 36.4) dropped for the third month running and the rate of decline accelerated to its fastest since May.

October data indicated a robust increase in new work received by construction companies.

The latest improvement in new order books was the strongest since December 2015.

The rebound in construction activity after the shutdowns seen during the initial lockdown period continued to put pressure on supply chain capacity in October. This was signalled by another sharp lengthening of delivery times for construction products and materials, with the latest deterioration in supplier performance the steepest since June.

Construction companies noted that demand for building materials had outstripped supply in October, which resulted in higher average cost burdens. The rate of input price inflation accelerated to its fastest since April 2019.

Meanwhile, efforts to reduce overheads and ongoing economic uncertainty contributed to a further decline in staffing numbers across the construction sector. The rate of job shedding was nonetheless much slower than seen in the second quarter of 2020.

Looking ahead, construction companies reported optimism towards their prospects for the next 12 months, despite concerns about the wider economic outlook. Around 45% of the survey panel anticipate a rise in output during the year ahead, while only 14% forecast a reduction.

‘Moving in the right direction’

Duncan Brock, group director at the Chartered Institute of Procurement & Supply, said: “Activity growth in the construction sector dipped a little in October as supply chain challenges impacted on productivity, and some of the momentum from the last few months leaked away.

“Higher levels of purchasing to meet the demands of the biggest rise in new orders since December 2015, were met with roadblocks of material shortages and the highest cost inflation since April 2019. Supplier delivery times acted as a drag on completion as builders rushed to finish work in hand and meet new build requests.

“The largest blot on the landscape was the number of redundancies and job shedding reported by construction firms, though builders remained relatively cheerful about the next 12 months.

“The strength of the pipeline of new work especially from a robust housing market means the sector is moving in the right direction and hopeful of getting through the winter unscathed.”

Gareth Belsham, director of Naismiths, commented: “The construction industry’s recovery is resting ever more on the shoulders of Britain’s booming housebuilders.

“With infrastructure work plunging back to levels not seen since the dark days of May and commercial property construction slowing too, residential building is keeping the flame alive.

“Housebuilders aren’t just busy now, they’re racking up orders for the future too. Order books are now fuller than at any time since the pre-Brexit December 2015, and the construction industry has successfully reset and rebooted after its dramatic, V-shaped collapse and recovery.

“With socially distant construction workable to plough on as usual during England’s second lockdown, the supply chain is now struggling to keep up with demand for building materials.

“Demand is exceeding supply for certain key materials, pushing up prices and adding to delivery times.

“A growing sense of momentum, even in the face of so much economic uncertainty, is boosting sentiment among construction firms – with 45% of those polled by the PMI reporting that they expect to be busier during the coming year.”

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