Construction Activity Pushes Back Into Growth In October

Output in Britain’s construction industry edged into growth territory last month despite confidence sinking to a near five-year low.

The Markit/CIPS UK Construction purchasing managers’ index (PMI) showed a reading of 50.8 in October, up from 48.1 in September and above economists’ expectations of 48.5.

A reading above 50 indicates growth.

While a robust performance from housebuilders helped drag the sector back into expansion, the industry’s performance was still tracking below the post-crisis trend of 54.7.

The PMI report also fuelled concerns over the industry’s future, with the balance of companies eyeing a rise in activity over the next year slipping to its weakest level since December 2012.

It comes after official figures released last week showed the construction industry had gone into recession after falling by 0.7% between July and September – the lowest drop since the third quarter of 2012.

Sterling eased back following the announcement, falling marginally against the US dollar to 1.324 and dropping 0.1% versus the euro at 1.138.

Tim Moore, associate director at IHS Markit, said: “Greater housebuilding was the sole bright spot in an otherwise difficult month for the construction sector.

“Sustained declines in civil engineering and commercial activity meant that large areas of the building industry have become stuck in a rut.

“Reduced tender opportunities and fragile demand are placing a dark cloud over the near-term outlook.

“October survey data indicated that UK construction companies are now the least confident about their forthcoming workloads since December 2012.”

Commercial building activity remained the thorn in the side of the sector, falling for the fourth month on the bounce amid growing concerns over the economic outlook and delays from clients.

Andrew Matthews

New homes being built, as housebuilding proved robust in October’s PMI report (PA)

However, civil engineering was the worst performing area, while staff recruitment expanded at the slowest rate in four years.

Howard Archer, EY ITEM Club’s chief economic adviser, said: “A tepid economy, and heightened economic, political and Brexit uncertainties threaten to hamper the construction sector over the coming months.

“Clients are clearly cautious over committing to major construction projects.

“Furthermore, there is the very real possibility that housebuilding activity could be pressurised by extended lacklustre housing market activity and subdued prices amid weakened consumer fundamentals.

“Construction companies will be hoping that the Chancellor targets measures aimed at boosting infrastructure and housebuilding in the budget on 22 November.

“It is notable that civil engineering activity contracted in October amid reports of ‘a lack of big ticket infrastructure projects to replace completed contracts’.”

The update comes after manufacturing industry rose last month, as domestic demand drove a raft of new contracts and the weak pound help deliver further growth in export orders.

It follows the UK economy unexpectedly accelerating to 0.4% in the third quarter, with the lion’s share of the expansion coming from the services and manufacturing industries.

However, economic growth is still struggling to bounce back to levels seen in the final quarter of 2016 when GDP rose by 0.6%.