UK construction companies recorded a marginal increase in
total business activity during August.
Growth in the commercial and civil engineering segments
helped to offset a slump in house building. However, business activity
forecasts for the year ahead were the weakest since January and job creation
lost momentum since the previous month.
This was largely due to falling sales volumes across the
construction sector, as signalled by the fastest decline in new orders for just
over three years.
At 50.8 in August, down from 51.7 in July, the headline
S&P Global / CIPS UK Construction Purchasing Managers’ Index (PMI) – a
seasonally adjusted index tracking changes in total industry activity –
signalled only a slight increase in overall construction output.
There were divergent trends across the three main
categories of construction activity monitored by the survey in August.
Commercial building continued to expand at a robust pace
(index at 54.2), with the rate of growth holding close to July's five-month
high. Civil engineering activity (52.4) also increased, but the speed of growth
slipped to its lowest since April. House building remained the
weakest-performing part of the construction sector (40.7), with the downturn
the second-fastest since May 2020.
Survey respondents widely commented on subdued market
conditions and a headwind to activity from cutbacks to new build projects.
August data signalled a decline in total new order volumes for the second time
in the past three months, which contrasted with solid growth in the spring.
Although only modest, the downturn in order books was the steepest since May
2020.
Construction companies noted that rising interest rates
and concerns about the near-term economic outlook had led to more cautious
spending among clients, especially in the residential building segment.
Employment numbers increased for the seventh month running, but the rate of
growth weakened since July and was only modest.
The upturn in sub-contractor usage also softened in
August, which contributed to the sharpest rise in availability since January
2010. Suppliers' delivery times for construction products and materials
meanwhile improved at a robust pace. The respective index eased slightly since
the previous month, but was still the second-highest since April 2009. Survey
respondents widely commented on improved stock availability and fewer pressures
on supplier capacity.
An improved balance between demand and supply helped to
stabilise overall input costs across the construction sector. Latest data
signalled only a marginal rise in purchasing prices and the rate of inflation
eased since July. A number of firms cited more competitive market conditions
and successful price negotiations with suppliers to account for falling raw
material costs. August data indicated that construction companies are
relatively cautious about the outlook for business activity during the next 12
months.
The degree of positive sentiment slipped to its lowest
since January, with concerns about the impact of rising borrowing costs and
subdued housing market conditions often cited during the latest survey period.
Tim Moore, Economics Director at S&P Global Market
Intelligence, which compiles the survey said: "UK construction companies
experienced another slump in house building activity during August as rising
interest rates and subdued market conditions resulted in cutbacks to client
demand and new build projects in particular. Aside from the pandemic, the
recent downturn in residential work has been the steepest since spring 2009.
"Resilient demand for commercial work and
infrastructure projects are helping to keep the construction sector in
expansion mode for now, but the survey's forward-looking indicators worsened in
August. Total new orders decreased at the fastest pace for more than three
years amid worries about the broader economic outlook and the impact of
elevated borrowing costs. Rising risk aversion also meant that construction
firms pared back their own output growth projections, with business activity
expectations slipping to the weakest since January.
"August data pointed to a welcome stabilisation of
costs across the construction sector and another sharp improvement in
suppliers' delivery times. Adding to signs of fewer capacity pressures, the
latest survey revealed the sharpest rise in subcontractor availability for more
than 13 years."
Dr John Glen, Chief Economist at the Chartered Institute
of Procurement & Supply (CIPS), said: "Though the construction sector
overall showed an improvement in August, several imbalances in the figures give
cause for concern.
"Residential building took another knock further
into contraction as new housing starts weakened. The cost of living crisis
continued to squeeze household finances and buyers were reluctant to commit in
the shadow of potentially another interest rate in September. Housing activity
fell at its second sharpest level since 2009, excluding the pandemic years, and
overall new orders dropped at the fastest rate since May 2020. The sector was
propped up overall by some improvements in commercial activity such as office
refurbishments.
"This below par performance had a knock-on effect on
job creation which was starting to lose momentum. The right skills remained in
short supply and without pipelines of new work coming through, recruitment
levels were reduced.
"One bright spot in August’s figures was the second
biggest improvement in supplier delivery times for 14 years as constraints on
raw materials eased and supply chain performance improved."
