Recovery in commercial work helps see output rise as industry waits on Budget

Output recovered last month helped by an improved performance in the commer4ial sector, according to a bellwether index.

The S&P Global UK Construction Purchasing Managers’ Index increased from a score of 44.3 in August to 46.1 in September – the slowest fall since January.

But the figure was still below the key no change score of 50 and the 21^st successive month of output staying in the red.

Commercial activity increased from 47.8 to 48.5 while slower rates of contraction were seen in both civil engineering and housing, although the latter with a score of 40.7 – up from August’s 37.6 – remained the worst-performing area of the construction sector.

The index added: “Many survey respondents linked lower output to sluggish market conditions, attributed to geopolitical tensions and elevated borrowing costs. September data pointed to a solid decline in total new work during September, with the rate of contraction accelerating to its fastest since June.

“Construction firms often noted headwinds from delayed decision-making on major projects and sharply rising input costs.”

S&P’s economics director Tim Moore said optimism amongst buyers had fallen to its lowest level since the spring and added: “Softer order books, elevated inflationary pressures and concerns about rising borrowing costs were all reasons for construction companies to moderate their year ahead growth expectations during September. This led to a sharp drop in business optimism to its lowest since May.”

He said that geopolitical tensions, lacklustre domestic economic prospects and higher fuel costs were all cited as reasons for fragile confidence.

Huda As’ad, Accenture’s capital projects and infrastructure lead in the UK and Ireland, said: “The construction industry may finally be seeing the first green shoots of stabilisation, but it is still early days. After a bruising summer, an easing in the downturn is welcome, particularly following the sharp contraction in housebuilding last month.

“Recent measures to support first-time buyers aim to stimulate demand in the months ahead. However, the bigger challenge will be ensuring the industry can deliver if demand returns. Confidence will also depend on creating the right conditions for developers, housebuilders and investors to commit to new projects and increase housing supply.”

And Joe Sullivan, partner at advisory firm MHA, said: “Activity has picked up since August but optimism is low. Activity continues to be held back by affordability pressures, delayed investment decisions and uncertainty over when major projects will actually move from planning to procurement and onto site.

“Housing remains the clearest pressure point. Demand is still there, but high mortgage costs and the ever increasing likelihood of elevated interest rates mean buyers remain cautious.”

Industry eyes will turn to this month’s Budget, Paul Atkinson, restructuring partner at FRP Advisory said, adding: “The upcoming Budget will be an important moment for the sector, with businesses looking for greater certainty around infrastructure investment and the wider cost of doing business.”

And Max Jones, director of infrastructure and construction at Lloyds, said: “The upcoming Budget will be an important moment for the sector. Firms are looking for consistency on long-term infrastructure commitments, providing them with the confidence they need to plan ahead.”