06 Oct 2023 By Charlotte Banks
Construction activity dropped sharply last month, led by a further slump in housebuilding.
The S&P Global/CIPS UK latest Purchasing Managers’ Index (PMI) plunged from 50.8 in August to 45.0 in September (scores above 50.0 suggest growth, while those under 50.0 indicate decline).
The index for residential work, standing at 38.1, was the biggest cause of the drop, although civil engineering and commercial work also saw declines.
CIPS chief economist John Glen said: “It has been a tough year for residential construction and the sharp decline in September shows the pressure on the sector is still a long way from easing, despite the pause on the raising of interest rates.”
The companies surveyed reported the steepest decline in new orders since the early days of the Covid pandemic. This decline was again led by fewer housebuilding projects, which respondents attributed to rising borrowing costs and weak demand conditions.
Weak order books contributed to a slowdown in the rate of employment growth and the fastest rise in subcontractor availability since July 2009.
The companies surveyed reported a gloomy short-term outlook, with the weakest business expectations of the year so far. However, 41 per cent of construction firms in the study predicted output to rise in the year ahead, as opposed to 17 per cent who thought it would fall.
On a more positive note, input prices were less of a concern than in previous months. Higher fuel bills and certain raw material price rises were counterbalanced by a fall in shipping costs and increased price competition among suppliers. Delivery times for construction products and materials continued their downward trajectory.
Industry experts pointed to more pain to come for the sector as a result of the government’s cancellation of Phase two of HS2. Kelly Boorman, national head of construction at consultancy RSM UK, said: “This month’s fall in the headline PMI to 45 is the steepest drop in three years and does not come as a surprise, with the data finally catching up with sentiment on the ground.
“This follows prolonged slowdown in the residential market, the post-Covid lag after working through major backlogs of work, and this week’s government announcement that HS2 is being axed.”
Daniel Wood, construction partner at law firm Gowling WLG, said: “The industry will be feeling the shockwaves of the uncertainty of HS2’s future from a supply chain perspective. This is something that will be compounded by the effects of last month’s drop in output.
“Contractors will be focusing on the ability to optimise the variety of opportunities that do exist, and their ability to do so will be a key survival attribute in an increasingly challenging environment.”
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