Construction activity fell sharply last month, driven by a further decline in homebuilding.
The latest S&P Global/CIPS UK Purchasing Managers’ Index (PMI) fell from 50.8 in August to 45.0 in September (scores above 50.0 suggest growth, while scores below 50.0 indicate a decline).
The residential construction index, which stands at 38.1, was the main cause of the decline, although civil engineering and commercial construction also experienced declines.
CIPS Chief Economist John Glen said: “It has been a tough year for residential construction and the sharp fall in September shows that the pressure on the sector is still a long way from easing, despite the pause in rising interest rates.”
Companies surveyed reported the steepest drop in new orders since the early days of the Covid pandemic. This decline was again driven by fewer homebuilding projects, which respondents attributed to rising borrowing costs and weak demand conditions.
The weak order book contributed to a slowdown in the rate of employment growth and the fastest increase in subcontractor availability since July 2009.
The companies surveyed reported a gloomy near-term outlook, with the weakest business expectations of the year so far. However, 41 percent of construction companies in the study predicted output would rise next year, compared to 17 percent who thought it would fall.
On a more positive note, input prices were less of a concern than in previous months. Higher fuel bills and certain commodity price increases were offset by a drop in shipping costs and increased price competition among suppliers. Delivery times for construction products and materials continued their downward trajectory.
Industry experts pointed out that there will be further pain for the sector as a result of the government’s cancellation of the second phase of HS2. Kelly Boorman, national head of construction at consultancy RSM UK, said: “This month’s fall in the headline PMI to 45 is the sharpest drop in three years and is no surprise as the data finally catch up with the feeling on the ground. .
“This follows a prolonged slowdown in the residential market, the post-Covid delay after dealing with significant work backlogs and the government’s announcement this week that HS2 is being scrapped.”
Daniel Wood, construction partner at law firm Gowling WLG, said: “The industry will feel the shockwaves of uncertainty over the future of HS2 from a supply chain perspective. This will be compounded by the effects of the drop in production last month.
“Contractors will focus on the ability to optimize the variety of opportunities that exist, and their ability to do so will be a key attribute of survival in an increasingly challenging environment.”
