UK construction companies signalled a modest increase in business activity during September, which represented a return to growth after two months of falling output. However, subdued demand persisted, as signalled by the weakest trend for new orders since the recovery began in June 2020.

Looking ahead to the next 12 months, survey respondents remain cautious about their growth prospects. The degree of confidence towards the business outlook dropped to its lowest for over two years in September, mostly reflecting concerns about higher interest rates and a downturn in the wider UK economy. On a more positive note, supply shortages eased in September, with delivery delays the least widespread since February 2020.

At 52.3 in September, up from 49.2 in August, the headline seasonally adjusted S&P Global / CIPS UK Construction Purchasing Managers’ Index® (PMI®) – which measures month-on-month changes in total industry activity – registered above the 50.0 no-change value for the first time since June. The latest reading was the highest for three months and signalled a modest overall increase in construction output. Survey respondents commented on a boost to activity from work on previously delayed projects.

House building was the best-performing category in September (index at 52.9), with growth reaching a five-month high. Commercial work increased only marginally (51.0), while civil engineering activity (49.6) fell for the third month in a row.

Survey respondents often commented on a strong pipeline of outstanding work, but incoming new orders remained relative scarce in September. Latest data signalled that new business volumes were broadly unchanged overall, which represented the worst month for new orders for almost two-and-a-half years. Construction firms cited slow decision-making among clients and greater risk aversion due to inflation concerns, squeezed budgets and worries about the economic outlook.

Subdued client demand contributed to a marginal reduction in purchasing activity across the construction sector. Survey respondents also suggested that a turnaround in supplier performance had led to reduced inventory building. Latest data signalled the least marked lengthening of vendor lead times since the pandemic began.

Employment growth meanwhile accelerated from August’s 17-month low. Around 21% of the survey panel reported a rise in staffing levels, while only 8% signalled a decline. Higher workforce numbers reflected efforts to boost business capacity, although construction firms continued to cite shortages of candidates to fill vacancies and strong wage pressures.

Average cost burdens increased sharply in September, but the overall rate of inflation eased to its lowest since February 2021. Survey respondents noted escalating energy costs and greater prices paid across the board for construction products and materials. Lower fuel prices and improved transportation availability were cited as factors helping to moderate the overall pace of cost inflation in September.

Finally, business optimism for the coming 12 months was relatively subdued in September. The latest survey pointed to the weakest growth projections since July 2020. While construction firms often commented on expected growth due to forthcoming new projects, many also suggested that recession risks and higher interest rates had weighed on confidence.


Tim Moore, Economics Director at S&P Global Market Intelligence, which compiles the survey said:

“UK construction companies experienced a modest increase in business activity during September, but the return to growth was fuelled by delayed projects and easing supply shortages rather than a flurry of new orders. Reports of delivery delays for construction products and materials were the least widespread since the pandemic began as greater business capacity and improved transport availability helped to ease pressure on supply chains.

“However, forward-looking survey indicators took another turn for the worse in September, with new business volumes stalling and output growth expectations for the year ahead now the lowest since July 2020. This reflected deepening concerns across the construction sector that rising interest rates, the energy crisis and UK recession risks are all set to dampen client demand in the coming months.”

Dr John Glen, Chief Economist at the Chartered Institute of Procurement & Supply, said:

“Developments in the UK economy have given the sector food for thought as supply chain managers reported softer levels of buying last month and the new orders index slipped to its lowest since May 2020. Though the headline index showed growth after two months in contraction, the devil lies in the detail pointing to lower customer confidence, a challenging UK economy and recession on the doorstep.

“Firstly, the rise in output has no sign of sustainable growth behind it as without new pipelines of work any gains will soon leak away. This was not lost on builders themselves who reported the lowest level of optimism since July 2020 about business opportunities in the next year.

“Secondly, the costs of doing business and the cost of living are still high and rising. More expensive energy and salary pressures to secure skilled staff have contributed to additional inflation, though 21% of building companies in the sector were still hiring to maintain capacity for current projects.

“The housing sector remained the strongest performer in September although with interest rates rising and mortgage costs affecting affordability rates especially for first-time buyers, this will be an obstacle for house building to keep up the momentum as we approach 2023.”

Brendan Sharkey, Head of Construction and Real Estate at MHA, said:

“Despite the cost of living and energy crisis gripping the country, the construction sector has of late coped with inflationary pressures by adjusting prices to maintain margins. While the economic landscape, coupled with the falling value of the pound, may deter UK investors in the immediate term, thereby impacting on future projects and slowing productivity, there is no slowdown of work for the sector as it stands.

“For the housing market, demand continues to remain strong however this will undoubtedly dip in the months ahead. The mortgage crisis following the Bank of England raising interest rates to 2.25% eliminates any economic benefits gained through the reduced stamp duty rate. Ultimately it creates zero incentive for homeowners to move or buy and potentially limits the ability and appetite of first time buyers from getting on the property ladder. Property prices should stabilise at best, but if employment falls expect to see falling prices.

“Last week’s mini-budget failed to produce any clear policies that provide additional support for the sector, meaning businesses face an uncertain future. The introduction of Investment Zones, while designed to stimulate economic activity and housing development within local economies, lacks sufficient detail on how the zones would work, the planning details required and the approval process. As a minimum the Government must address these points to enable the sector to fully grasp the opportunities it will present.

“The Government should reintroduce tax relief on mortgage interest for first-time buyers to stimulate the property market. This relief would run alongside the first-time buyers stamp duty reduction making an attractive incentive to both the buyer and developer. Ultimately, the Government must deliver their promises on time, without delays and with clarity to ensure that activity within the construction sector continues to flourish.”

Toby Banfield, restructuring partner at PwC, said:

“While the latest PMI shows sector growth and easing supply shortages in September, a deeper dive reveals ongoing pressure with the weakest trend for new orders since June 2020 and overall confidence dropping to its lowest for over two years. 

“Construction contracts are typically cash positive from a working capital perspective which means customers pay up front for various phases of work before the construction starts.  A drop in new project volumes reduces cash coming into the business, which is leading to cash flow challenges for businesses – a move that is increasing pressure with previous cash receipts already used to meet unexpected material price increases on existing projects.

“Getting costs under control, doing proper bottom up forecasts and locking in as many variable costs as possible, with hedging or inflation options will all be critical for managing cash flow going forwards. The manner in which firms react could make all the difference over the next few months.”

Paul Sloman, PwC Engineering and Construction leader, added his perspective on the PMI results;

“In the energy-intensive construction sector, businesses will still come under pressure to build up their inventories to protect against supplier delays. There will also be a focus on cutting costs, as it becomes darker and chillier, just as heat, power and lighting bills rise from October. Preserving cash, getting their forecasting in order and finding ways to return input material costs to previous levels is a major priority.

“Even where the government has decisively stepped in, with measures like the corporate energy price guarantee, costs are still rising. We estimate October energy contract renewals will still lead to at least a doubling in prices in many cases.”

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