The outlook for UK construction has deteriorated to its weakest level in six years, despite an increase in business activity in October, according to a new survey of construction buyers.
The IHS Markit / CIPS UK Construction PMI index reported a “sustained” increase in business during October at 53.2, up from 52.1 in September, where any score above 50 indicates a growth in activity.
That was the second-highest level in 16 months, although it was still below the long-run survey average of 54.3.
The survey recorded an increase in activity every month since April, which is linked to the start of new contracts, overseas work, and a general increase in business.
Civil engineering drove the overall increase, having declined in both August and September.
Meanwhile house building and commercial construction both increased at solid rates in October, albeit the weakest in seven and five months respectively.
However, new business volumes were reported to be rising more slowly and the rate of new contract growth was the weakest in the current five-month sequence of expansion, with some firms mentioning intense competition and delayed decisions from clients.
That impacted firms’ expectations for future growth, with the business expectations index falling to the lowest level in nearly six years. Alongside falling volumes of new business, companies highlighted uncertainty related to Brexit.
As a result of the uncertainty, construction companies increase their input purchasing more carefully, with the overall volume of inputs purchased continuing to rise in October but at the slowest rate in seven months.
Trevor Balchin, economics director at IHS Markit, which compiles the survey: “Although total UK construction activity rose at a stronger pace in October, the underlying survey data paint a less rosy picture for the sector towards the end of the year.
"New contracts increased at only a modest pace, and firms were the least optimistic regarding the 12-month outlook for nearly six years. Construction companies again linked uncertainty to Brexit negotiations, which influenced delays to final decisions at clients.
"Moreover, the higher total activity figure reflected the civil engineering sector, which saw a rebound following declines in August and September. Housing and commercial construction activity both rose more slowly in October, and at rates that remained below long-run survey averages.
"More positively, construction firms continued to raise headcounts at a strong pace, suggesting they are not expecting an imminent contraction in demand. That said, if the new orders and expectations indices remain at current levels or fall further, the employment index could also drift back towards the 50.0 no-change mark."
Duncan Brock, group director at the Chartered Institute of Procurement & Supply: “On the surface, the construction sector showed growth but there was plenty for businesses to be concerned about underneath. "Optimism was at its lowest level for six years, as the sector remained stifled by client hesitation, fears about the health of the UK economy and continued Brexit uncertainty, resulting in slower growth of new orders and purchasing.
"However, job creation bucked this downward trend with one of the highest levels of hiring in the last three years and civil engineering experienced a slight reprieve after a few disappointing months. The slowdown in the housing sector as the main driver of recent growth was unsurprising given the poor performance in UK house sales. "These results point to the sector getting stuck in the mud as we approach March 2019, and with ongoing supplier delays and stock shortages, the sector may not be able to respond quickly enough anyway should there by a sudden upturn in fortunes.”
