Weakest rise in construction output for six months in September

UK construction companies indicated a sustained increase in business activity during September but the rate of expansion slowed for the second month running.

At 52.1 in September, down from 52.9 in August, the seasonally adjusted IHS Markit/CIPS UK Construction Purchasing Managers’ Index signalled the weakest upturn in output for six months.

Civil engineering was the worst performing subcategory of construction work, with activity declining at a slightly quicker rate in September.

Housebuilding and commercial construction continued to increase at a solid pace, although the latest survey indicated weaker growth than in August.

Tim Moore, associate director at IHS Markit, said: “UK construction firms experienced softer output growth during September, with housebuilding, commercial and civil engineering all losing momentum. A lack of new work to replace completed projects meant that civil engineering saw an overall decline in activity for the second month running and remained the main laggard.”

The rate of new order growth picked up to its strongest since December 2016, with firms saying this could be attributed to resilient demand and an upturn in new invitations to tender.

Delivery times for construction products and materials blew out in September, with intense supply chain pressures attributed to stock shortages at vendors and stretched transportation capacity. 

Phil Harris, director at BLP Insurance, said: “Once again in September, the main driver of growth was new orders, as demand within the residential sector continues to hold strong. However, with cliff-hanging Brexit negotiations looming and the commercial, housing and retail markets showing varying degrees of strain, the long-term forecast is unclear.

“The effect of Brexit is still impossible to quantify as we head towards potentially crucial talks at the 18-19 October EU Summit. With no favourable outcome on the horizon, perpetual indecision reigns, exacerbating issues such as materials lead times, the current labour and skills shortage, as well as the delays to much needed innovation within the industry.”

Max Jones, global corporates relationship director for infrastructure and construction at Lloyds Bank Commercial Banking, said: “Events earlier this year have focused minds on bidding discipline and this continues to be the watchword, with evidence that the top-tier contractors are holding prices rather than lowballing. 

“The commercial sub-sector is facing myriad headwinds, with the London market still heavily exposed to Brexit uncertainty and retail suffering an annus horribilis. 

“Against this background, many contractors are betting big on infrastructure, yet there is only so much work to go round. And with some questioning the merit of the current pipeline of megaprojects, it underlines that there is no risk-free part of the market in which to be invested.”

Sue Kershaw, managing director of major project advisory at KPMG, said: “August’s renewed optimism was short-lived, with September’s PMI showing a dip in momentum. While it’s discouraging to see, this kind of decline isn’t unusual following a period of recovery as activity begins to stabilise. 

“The most concerning is the decline of civil engineering projects. Having a steady pipeline of new work is essential for the overall health of the construction sector, but we’ve seen productivity hampered by input price inflation and increased delivery times.”