The latest data has highlighted a robust upturn in UK construction output, with the headline Purchasing Managers’ Index up at 55.2 in November from 54.3 in October.
Furthermore, the S&P Global UK Construction’s headline index has now posted above the neutral 50.0 threshold for nine months running.
However, new order growth eased to a five-month low and year-ahead business activity expectations were the least upbeat since October 2023.
Index breakdown
A faster upturn in construction output was driven by the strongest rise in commercial work for two-and-a-half years (index at 58.1). Survey respondents commented on improving customer demand and new opportunities to tender, despite relatively subdued economic conditions. Civil engineering activity (55.9) also expanded at a strong pace in November. That said, the rate of growth slipped to a three-month low.
House building (47.9) remained by far the weakest-performing category of construction work in November. The respective seasonally adjusted index was inside negative territory for the second month in a row and signalled the fastest rate of decline since June. Construction companies once again noted that elevated borrowing costs and fragile consumer confidence had an adverse impact on demand conditions.
New business
New business volumes increased across the construction sector as a whole for the tenth successive month in November and at a sold pace. The rate of growth nonetheless slipped to its lowest since June. There were some reports that political and economic uncertainty linked to the Autumn Budget had affected client confidence. Where growth was reported, it was often linked to new projects in the commercial sector.
Job creation and costs
November data highlighted only a marginal rise in employment numbers, with the rate of job creation easing to a three-month low. Anecdotal evidence highlighted increasing employment costs as a factor holding back staff hiring. Some construction companies commented on greater use of sub-contractors to help mitigate rising costs. This was signalled by an increase in sub-contractor usage for the first time since July. Latest data nonetheless pointed to the steepest increase in subcontractor charges for 16 months.
Purchasing activity meanwhile increased at the slowest pace since the current phase of expansion began in May, largely reflecting a loss of momentum for new order growth. Supplier performance deteriorated to the greatest extent since February 2023, with survey respondents mainly citing transportation issues and international shipping delays.
Construction companies recorded the fastest rise in their average cost burdens for 18 months in November. This was linked to a general increase in raw material prices, as well as efforts among some suppliers to pass on higher staff costs.
Looking ahead
Finally, around 43% of the survey panel predict an increase in business activity during the year ahead, while 21% forecast a reduction. Although this signalled upbeat business expectations across the construction sector, the degree of optimism was down sharply since October and the lowest for 13 months.
Anecdotal evidence from survey respondents widely suggested that worries about the UK economic outlook and impact on business investment from rising employment costs had weighed on business optimism in November.
