U.K. construction activity rises in October, PMI index rises to 53.2

Construction firms in the U.K. showed a sustained rise in business activity in October. The overall pace of growth rebounded a bit since September and was the second most solid in 16 months. The seasonally adjusted IHS Markit/CIPS UK construction PMI rose to 53.2 in October from September’s 52.1. However, it was still lower than the long-run survey average of 54.3. Construction output has increased every month since April. Higher activity was attributed to the commencement of new contracts, overseas work and a general rise in business.

Out of the three wide categories monitored, civil engineering drove the overall rise in the pace of growth in October. After falling in August and September, activity in the sector rose at the strongest rate since July 2017 at the beginning of the final quarter. In the meantime, house building and commercial construction both rose at strong rates in October, albeit the softest in seven and five months respectively. On the contrary, civil engineering was the best performing segment for the first time since January.

In contrast to the trend seen for construction activity, latest data indicated to a slower rise in new business volumes. The pace of new contract growth was the softest in the current five-month sequence of growth. Some companies stated intense competition in the market, and delayed final decisions from clients. Slower new order growth affected companies’ expectations for future growth, with the business expectations index falling to a new six-year low. Along with muted new project intakes, firms underlined uncertainty related to Brexit and the economy as undermining confidence.

Construction firms, in response to the deceleration in growth of incoming new projects, increased their input purchasing more cautiously. The overall volume of inputs purchased continued to increase in October; however, at the slowest pace in seven months. More positively, companies continued to increase employment at a solid overall rate. In spite of the softer rise in inputs being ordered, delivery times for construction products and materials continued to lengthen markedly in October. Companies continued to report stock shortages at vendors.

Cost pressures in the U.K. construction sector continued to be solid in October, in spite of the pace of input price inflation easing to a 27-month low. Companies underlined increased fuel, labor, timber and steel costs. Sub-contractor rates also continued to rise at a comparatively solid rate in the month.

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