Confidence in construction growth at ten-month low

Total business activity growth across the UK construction sector for October 2024, has slowed following an acceleration to its fastest for nearly two-and-a-half years, last month.

The S&P Global UK Construction Purchasing Managers’ Index (PMI), which tracks changes in total industry activity, registered 54.3 in October, down from 57.2 in August.

However, the index was above the 50.0 no-change threshold for the eighth successive month.

The latest reading was also well above the average seen in the first half of 2024 (51.4) and signalled a solid expansion of total industry activity. 

Civil engineering, at 56.2, stood out as the best-performing category of construction output in October, due mostly to rising demand for energy infrastructure projects, especially renewables.

Commercial work (52.8) also expanded in October, but the increase was the weakest since the current period of growth began in April. 

House building was the only broad category of construction work to register an overall decline in output during October with 49.4, which was the first decrease in residential activity since June.

Some construction companies noted that elevated borrowing costs and uncertainty ahead of the Autumn Budget had constrained demand. 

Meanwhile, new orders expanded at a solid pace in October, but were softer than the two-and-a-half year high seen in September.

Political uncertainty and subdued household demand due to cost-of-living pressures were cited as factors limiting new order growth in October.

However, many construction companies noted strong sales pipelines and tender opportunities linked to generally improving domestic economic conditions, while the rate of job creation accelerated to a three-month high.

Suppliers’ delivery times also improved marginally in October with lead times now having shortened in each of the past three months.

But despite construction output broadly keeping its head above water, business optimism has slipped to ten-month low, with construction companies having the least confidence about their output growth projections since December 2023. 

Tim Moore, Economics Director at S&P Global Market Intelligence, said: “The construction sector signalled another month of solid output growth in October, despite being unable to match the highs seen in September.

“Business activity expansion was once again led by civil engineering work. Survey respondents widely commented on strong demand for renewable energy infrastructure projects.

“Commercial construction activity also increased again, albeit at the slowest pace since the current phase of expansion began in April. 

“Improving domestic economic conditions helped to boost demand, but some construction companies reported delayed spending decisions ahead of the Autumn Budget.” 

In response to the Index’s findings, technical director at Thomas & Adamson, Jordan Smith, noted the caution felt in anticipation for the Autumn Budget, but reiterated the buoyancy of industry growth above the no-change threshold.

Smith said: “While PMI dipped between September and October, it remains well above the average seen in the first half of the year. 

“Infrastructure and commercial activity remain buoyant, but the residential sector saw a decline in housebuilding as a result of the changing economic landscape. 

“Lead times seem to be improving, but proactive supply chain management remains key to delivering successful projects, with careful planning around procurement, and material delivery times essential to mitigate project risk. 

“It will be interesting to see how the measures introduced by the Chancellor last week further influence the market. 

“Despite job creation now being at a three-month high, the change in employers’ National Insurance contributions, for instance, could have a knock-on effect for new employment, with small businesses having to navigate these new changes.”

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