Commercial construction output growth in October results in the fasted rate of new work in 12 months

A new report shows that October data highlighted another upturn in overall UK building and construction industry output, alongside a rebound in new order growth and the fastest pace of job creation for almost a year. Commercial building work was a key growth driver in October, as housing and civil engineering activity both expanded at slower rates than in September.

Despite a robust and accelerated rise in input buying, latest data indicated the lowest strain on supplier delivery times for almost five years. Meanwhile, relatively subdued cost inflation continued in October, helped by falling raw material prices (especially metals).

The headline seasonally adjusted Markit/CIPS UK Construction Purchasing Managers’ Index® (PMI®) registered 58.8 in October, which was down from 59.9 in September but still well above the 50.0 no-change threshold. As a result, the latest survey marked two-and-a-half years of sustained output growth across the UK construction sector. While the pace of expansion remained weaker than seen on average in 2014, the latest reading was comfortably above the pre-election low recorded in April (54.2).

Higher levels of activity were recorded across all three broad categories of construction monitored by the survey. However, housing activity growth eased from September’s 12-month high, and the latest rise in civil engineering was the slowest since May. Commercial building work increased at the sharpest pace for eight months.

Reports from survey respondents suggested that greater output volumes reflected a strong pipeline of work-in-hand, alongside faster new order growth over the month. The latest rise in incoming new work was the steepest since October 2014, with construction companies highlighting new project wins from both public and private sector clients. 

Looking ahead, construction companies remain highly upbeat about their prospects for growth over the next 12 months, with more than half (59%) forecasting a rise in business activity and only 7% expecting a decline. Anecdotal evidence cited an encouraging number of new invitations to tender and expectations of solid spending levels among key clients. 

Construction companies responded to the rebound in new business growth by taking on staff at a faster pace. Moreover, some firms commented on efforts to reduce their reliance on sub-contractors. Latest data pointed to a fall in sub-contractor availability for the twenty-eighth month running, which is the longest continuous period since 2003. 

Input buying increased at the steepest rate for nine months in October. However, supplier performance deteriorated to the least marked degree since November 2010. A number of construction firms noted that greater capacity among suppliers had helped to alleviate the pressure on average lead times for raw materials. 

Commenting on the report, David Noble, Group Chief Executive Officer at the Chartered Institute of Procurement & Supply, said: “Supplier performance deteriorated to the least marked extent for almost five years in October, as capacity was increased to meet an upsurge in purchasing activity – the strongest for nine months.

“Prompted by a rise in new orders, pipeline work, low raw material costs and more marketing activity, the sector also experienced the speediest expansion in staffing levels since November 2014 to meet this increased volume of contract demands.

“With sustained growth now for two-and-a-half years, respondents also reported more confidence in the sector and from clients, and an expectation of an even stronger performance next year.”

A surge in new work across the UK construction industry in October cheered financial markets and sent the pound close to a 10-week high against a basket of currencies.

Tim Moore, a senior economist at Markit, said: “Another relatively buoyant construction PMI reading indicates that the sector remains in rude health. Rather than acting as a drag on the economy, as suggested by recent GDP estimates, the sector is continuing to act as an important driving force behind the ongoing UK economic upturn.”

He said construction companies noted a rebound in new business flows in October and responded by taking on extra staff at the fastest rate for almost a year.

“Shortages of skilled staff persisted as a result, with the current period of falling subcontractor availability the longest seen in over a decade,” he said.

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