CIPS News


Construction sector returns to growth in September

CIPS 4 October 2016

A solid rebound in residential activity was the key factor boosting overall construction output during September.

Markit/CIPS UK Construction PMI®

Business activity rises for the first time since May
 Solid upturn in housing activity offsets decline in
commercial work
 Fastest increase in new orders for six months
September data highlighted an upturn in business
activity across the UK construction sector for the
first time since May, primarily driven by a recovery
in residential building. New orders also rebounded
during September, which ended a four-month
period of sustained decline.
Survey respondents cited improving confidence
among clients and a reduced drag on demand
from Brexit-related uncertainty. Reflecting this,
construction firms indicated a further recovery in
their business expectations for the next 12 
months, with optimism the strongest since May.
Just under half of the survey panel (45%) forecast
a rise in output over the year ahead, while only 9%
anticipate a reduction. However, the degree of
confidence remained softer than that seen at the
start of 2016.
Adjusted for seasonal influences, the Markit/CIPS
UK Construction Purchasing Managers’ Index®
(PMI®
) registered 52.3 in September, up from 49.2
in August and above the 50.0 no-change value for
the first time in four months. The latest reading
was well above July’s seven-year low and
indicated the fastest rise in construction output
since March. The pace of expansion was
nonetheless still softer than the long-run survey
average (54.6).
A solid rebound in residential activity was the
key factor boosting overall construction output
during September. Moreover, the latest increase in
housing activity was the strongest recorded since
January. A number of firms cited resilient demand
for residential building work and generally
improving market conditions.
Construction companies pointed to a renewed rise
in civil engineering activity, with the pace of
expansion the fastest since March. Commercial
construction activity decreased for the fourth
month running, which is the longest period of
sustained decline since early-2013. However, the
latest fall was only modest and the slowest
recorded since the downturn began in June.
Higher levels of overall construction activity were
supported by a rise in new work for the first time
since April. Anecdotal evidence suggested that 
signs of improving domestic economic conditions,
and an upturn in housing-related demand in
particular, had contributed to greater volumes of
incoming new work in September. This in turn led
to a further moderate rise in employment levels
across the construction sector, although subcontractor
usage continued to fall at one of the
fastest rates since late-2013.
Mirroring the positive trends seen for business
activity and new work, latest survey data
highlighted a return to rising input buying across
the construction sector. Meanwhile, construction
companies indicated that supply chain pressures
eased in September, with the latest deterioration 
in vendor performance the least marked seen for
almost six years.
There were again widespread reports that
exchange rate depreciation had pushed up the
cost of construction materials during September. A
number of survey respondents noted that domestic
suppliers had sought to pass on higher imported
raw material costs. Although easing since August,
the rate of input price inflation was close to the
highest for two years. 
David Noble, Group Chief Executive Officer at
the Chartered Institute of Procurement & Supply,
said:
“The residential sector was the winner this month,
as consumer confidence made a modest recovery,
post the EU referendum.
“Overall, the fastest rise in new orders for
construction projects since April ended a fourmonth
decline, and purchasing activity was at its
highest since March. But, though there were
modest rises in staffing levels, these were at one of
the weakest rates in the last three years.
“Supplier delivery times recovered at a moderate
rate, as higher stocks of building materials were
reported and business optimism improved, ending a
39-month low. But, the sector still faces challenges
with continuing pressures on input prices resulting
from the weaker pound and the lingering
uncertainty of the Brexit process and how it will
impact on future business.”
CIPS
Trudy Salandiak
Tel: +44 1780 761576
Email: trudy.salandiak@cips.orgMarkit / CIPS UK Services PMI®
  • Business activity rises for the first time since May
  • Solid upturn in housing activity offsets decline incommercial work
  • Fastest increase in new orders for six months

 

September data highlighted an upturn in businessactivity across the UK construction sector for thefirst time since May, primarily driven by a recoveryin residential building. New orders also reboundedduring September, which ended a four-monthperiod of sustained decline.

Survey respondents cited improving confidenceamong clients and a reduced drag on demandfrom Brexit-related uncertainty. Reflecting this,construction firms indicated a further recovery intheir business expectations for the next 12 months, with optimism the strongest since May.Just under half of the survey panel (45%) forecasta rise in output over the year ahead, while only 9%anticipate a reduction. However, the degree ofconfidence remained softer than that seen at thestart of 2016.

Adjusted for seasonal influences, the Markit/CIPSUK Construction Purchasing Managers’ Index® (PMI®) registered 52.3 in September, up from 49.2in August and above the 50.0 no-change value forthe first time in four months. The latest readingwas well above July’s seven-year low andindicated the fastest rise in construction outputsince March. The pace of expansion wasnonetheless still softer than the long-run surveyaverage (54.6).A solid rebound in residential activity was thekey factor boosting overall construction outputduring September. Moreover, the latest increase inhousing activity was the strongest recorded sinceJanuary. A number of firms cited resilient demandfor residential building work and generallyimproving market conditions.

Construction companies pointed to a renewed risein civil engineering activity, with the pace ofexpansion the fastest since March. Commercial construction activity decreased for the fourthmonth running, which is the longest period ofsustained decline since early-2013. However, thelatest fall was only modest and the slowestrecorded since the downturn began in June.

Higher levels of overall construction activity weresupported by a rise in new work for the first timesince April. Anecdotal evidence suggested that signs of improving domestic economic conditions,and an upturn in housing-related demand inparticular, had contributed to greater volumes ofincoming new work in September. This in turn ledto a further moderate rise in employment levelsacross the construction sector, although subcontractorusage continued to fall at one of thefastest rates since late-2013.

Mirroring the positive trends seen for businessactivity and new work, latest survey datahighlighted a return to rising input buying acrossthe construction sector. Meanwhile, constructioncompanies indicated that supply chain pressureseased in September, with the latest deterioration in vendor performance the least marked seen foralmost six years.There were again widespread reports thatexchange rate depreciation had pushed up thecost of construction materials during September. Anumber of survey respondents noted that domesticsuppliers had sought to pass on higher importedraw material costs. Although easing since August,the rate of input price inflation was close to thehighest for two years. 

David Noble, Group Chief Executive Officer atthe Chartered Institute of Procurement & Supply,said:“The residential sector was the winner this month,as consumer confidence made a modest recovery, post the EU referendum.

“Overall, the fastest rise in new orders for construction projects since April ended a four month decline, and purchasing activity was at its highest since March. But, though there were modest rises in staffing levels, these were at one of the weakest rates in the last three years.

“Supplier delivery times recovered at a moderate rate, as higher stocks of building materials were reported and business optimism improved, ending a 39-month low. But, the sector still faces challenges with continuing pressures on input prices resulting from the weaker pound and the lingering uncertainty of the Brexit process and how it will impact on future business.”

CIPS

Trudy SalandiakTel: +44 1780 761576

Email: trudy.salandiak@cips.org

The October UK Construction PMI will be published on Wednesday November 2 2016 at 09:30 UK / 08:30 UTC.

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