Construction “into expansion mode” for the first time since EU vote

The UK construction sector has shrugged off the Brexit decline in business activity according to a closely-watched industry index.

The latest Markit/CIPS UK Construction Purchasing Managers’Index (PMI)® rose to 52.3 in September, up from 49.2 in August, marking the first positive change since May and the fastest rise in output since March.

The boost in construction is driven by strong residential building, with a number of firms citing resilient demand and improving market conditions. The latest increase in housing activity was also the strongest on record since January, according to the survey data.

Commercial construction marked the longest period of continued decline since early 2013 by recording a decrease in activity in September. The authors of the index however highlighted the decline was “only modest” and at the slowest pace since June when the downturn started.

The latest data showed a return to rising input buying across the sector while supply chain pressures eased. \ Contractors however reported the fall of the pound had pushed up the cost of construction materials, with the rate of input price inflation close to the highest for two years in September. Some respondents noted that domestic suppliers had sought to pass on higher imported raw material costs.

Higher levels of construction activity were further boosted by a rise in new work for the first time since April. This subsequently led to a further moderate rise in employment levels across the sector but subcontractor usage continued to fall at one of the fastest rates since late 2013.

Tim Moore, Senior Economist at IHS Markit and author of the Markit/CIPS Construction PMI® , said:

“UK construction companies moved back into expansion mode during September, led by a swift recovery in residential building from the three-and a-half year low recorded in June. Resilient housing market conditions and a renewed upturn in civil engineering activity helped to drive an overall improvement in construction output volumes for the first time since the EU referendum.

“A number of survey respondents noted that Brexit-related anxiety has receded among clients, although it remained a factor behind the ongoing decline in commercial building work. Construction firms appear reasonably optimistic about the near-term outlook, with confidence linked to the fastest rise in new orders since March and a more upbeat economic newsflow in general.

“However, the sector remains on a much weaker growth trajectory than seen at the start of 2016, which contrasts with the export-led surge in manufacturing production during September. Not only are UK construction companies feeling the impact of subdued investment spending relative to earlier this year, but the weak pound has contributed to a sharp acceleration in cost inflation.”

David Noble, Group Chief Executive Officer at the Chartered Institute of Procurement & Supply, said:

“The residential sector was the winner this month, as consumer confidence made a modest recovery, post the EU referendum. Overall, the fastest rise in new orders for
construction projects since April ended a four-month decline, and purchasing activity was at its highest since March. But, though there were modest rises in staffing levels, these were at one of the weakest rates in the last three years.

“Supplier delivery times recovered at a moderate rate, as higher stocks of building materials were reported and business optimism improved, ending a 39-month low. But, the sector still faces challenges with continuing pressures on input prices resulting from the weaker pound and the lingering uncertainty of the Brexit process and how it will
impact on future business.”