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Upturn in commercial work helps lift construction activity

UK construction output rose slightly in August, but new orders fell at fastest pace since May 2020 

UK construction companies recorded a marginal increase in total business activity during August, with growth in the commercial and civil engineering segments helping to offset a slump in house building.

However, business activity forecasts for the year ahead were the weakest since January, 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. 

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.

August data also 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, 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.’

He continued: ‘Resilient demand for commercial work and infrastructure projects is 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.’