Steep fall in house building weighs on construction activity

Latest PMI data show UK construction output continued to decline at a sharp pace in October 

UK construction companies indicated that challenging business conditions persisted during October, with business activity falling for the second month running amid a lack of new work to replace completed projects. Fragile client confidence and elevated borrowing costs were often cited as reasons for weaker sales.

At 45.6 in October, the headline S&P Global / CIPS UK Construction Purchasing Managers’ Index (PMI) was up slightly from 45.0 in September. However, it was still the second-lowest reading since May 2020 and signalled a marked decline in total construction activity.

House building decreased for the eleventh successive month in October and at a much steeper pace than elsewhere in the construction sector (index at 38.5). Falling work on residential construction projects was widely linked to a lack of demand and subsequent cutbacks to new projects.

Civil engineering activity also decreased sharply in October (index at 43.7) and the rate of decline was the fastest since July 2022. Meanwhile, there were signs of stabilization in the commercial building segment, with activity falling only marginally and at a slower pace than in September (index at 49.5).

Total new work fell for the third month running in October and the rate of contraction was the joint-sharpest since May 2020. Survey respondents widely commented on a lack of tender opportunities and lengthier decision-making among clients due to concerns about the broader economic outlook.

Worries about shrinking pipelines of construction work contributed to a moderation in business confidence for the third successive month in October. Around 37% of the survey panel forecast a rise in business activity during the year ahead, while 19% predict a decline. The degree of optimism signalled by the survey in October was the lowest so far this year. 

Tim Moore, economics director at S&P Global Market Intelligence, said: ‘October data highlighted another solid reduction in UK construction output as elevated borrowing costs and a wait-and-see approach to new projects weighed on activity. House building decreased for the eleventh month running and once again saw a much steeper downturn than other parts of the construction sector. There were signs of stabilization in the commercial building segment, however, with output falling only slightly since September.’

Dr John Glen, chief economist at the Chartered Institute of Procurement & Supply (CIPS), added: ‘High interest rates and low consumer demand for new homes continue to drag down the UK construction sector, with a lack of new tender opportunities and a cutback of existing projects being reported across the house-building industry.

‘There is no doubt that UK construction is in a difficult period and there will likely be further challenging months to come. However, despite commercial building activity continuing to fall, there were signs of stabilization within this sub-segment, and this may provide a glimmer of hope which the wider construction sector will keep a close eye on as we move into next year.’