06 OCT 2022


UK construction companies signalled a modest increase in business activity during September, according to the latest monthly PMI® report.

While representing a return to growth after two months of falling output, subdued demand persisted and business optimism was at its lowest since July 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 more than 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.

The S&P Global/CIPS UK Construction Purchasing Managers’ Index® (PMI®) - which measures month-on-month changes in total industry activity – was 52.3 in September, up from 49.2 in August.

It means the figure registered above the 50.0 no-change value for the first time since June.

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 said incoming new orders remained relatively scarce in September. 

Latest data signalled 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. 

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.

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.”

Mark Robinson, group chief executive at public sector procurement authority SCAPE, said: “The construction sector is often one of the first to be impacted by changing economic winds, so an uptick amid recent market turbulence undoubtedly goes against the run of play.

“The restoration of the pound to pre ‘mini-budget’ levels – coupled with the chancellor’s energy support package – would provide greater short-term certainty on material and input prices but a challenging winter remains likely as wider inflation continues to affect costs across public and private sector projects.

“Our figures show the sector delivered more than £1bn in social value for local communities during the post-pandemic recovery, but we risk seeing the progress of vital regeneration slowing if conditions remain volatile for a sustained period.”

Max Jones, director in Lloyds Bank’s infrastructure and construction team, added: “Contractors know the coming months will be uncertain but will take some confidence from having successfully navigated the disruptions of the past two years. 

“Rising costs, though still a challenge on the salary front, have eased somewhat from their peak earlier in the year for materials, which gives confidence across supply chains. 

“While other announcements have stolen the headlines, the construction industry will also be broadly welcoming the new infrastructure measures unveiled by the chancellor in his fiscal statement. The projects announced will provide a clearer pipeline of road and rail projects to bid on. However, it is still not clear how the workforce to carry out these projects will be resourced when the labour market is already tight.

“Sterling’s rollercoaster ride over the past two weeks will have concerned those reliant on importing materials for projects. However, any tangible evidence of its impact is likely to come in the new year as construction tends to lag the economic cycle.”

PMI data was collected from September 12-29.


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