New orders down for first time in 29 months

Construction activity increased in October but new orders fell for the first time since May 2020, according to the latest purchasing managers’ index (PMI).

October saw total industry activity rising at the fastest rate since May this year but, despite this growth, future expectations remained very subdued, according to the index, which measures month-on-month construction activity based on a national survey of businesses in the industry.

Optimism had fallen sharply since September and was the lowest in 29 months, reflecting falling volumes of new work and worries about the longer-term UK economic outlook.

The index of construction activity posted a score of 53.2 for October, up from 52.3 in September, and continued to pick up from July’s low point of 48.9. Any figure over 50 represents a rise in activity.

Higher levels of business activity were attributed to a combination of new project starts and strong pipelines of unfinished work.

Commercial building was the best-performing category in October, with output growth reaching a five-month high. Residential work also expanded, but at a softer pace than in September, although civil engineering decreased for the fourth month running.

Total new orders fell slightly in October, which ended a long period of sustained expansion since the depths of the pandemic.

Construction companies noted weaker confidence among clients, rising input prices and higher borrowing costs, while some firms said heightened political uncertainty had led to a drop in new work.

Rising construction output contributed to increases in buying and staff hiring during October, but weaker demand contributed to a slowdown in the rate of job creation.

John Glen, chief economist at the Chartered Institute of Procurement and Supply, said the small improvement in output over the month to October “offered little in terms of comfort even though purchasing activity also rose and supply chain performance returned to near-normal levels, [as] the sector remained under pressure from all sides”.

A slew of reports released earlier this week cast a negative outlook for the construction sector in 2023. The Royal Institution of Chartered Surveyors and construction intelligence provider Glenigan were among those predicting a tough 12 months ahead.

Commenting on the PMI data, Mark Robinson, group chief executive of public procurement body Scape, said: “Growth in the construction sector continues to fly in the face of wider market conditions, including a particularly unsettled October for the economy.”

He said the government’s autumn statement, due on 17 November, was likely to see public spending fall, so “it is vital that local authorities are efficient in their efforts to secure central funding to support local regeneration, boost social value and stimulate the economy more broadly”.

Fraser Johns, finance director at contractor Beard, said: “Against a backdrop of continued economic uncertainty, it’s positive to see momentum within the UK construction sector, with activity continuing to rise. This resilience is thanks in large part to commercial building, and certainly mirrors the developments and projects we’re working on.”

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