UK construction sector returns to growth

Construction firms across the UK saw an upturn in business activity last month, according to figures released on Tuesday.

The Markit/CIPS survey of purchasing managers in the construction industry showed that business activity rose for the first time since May, primarily driven by a recovery in residential building. New orders also rebounded in September, ending a four-month period of sustained decline.

Adjusted for seasonal factors, the Markit/CIPS UK Construction Purchasing Managers’ Index (PMI) stood at 52.3 in September, up from 49.2 in August — rising above the 50 mark that divides growth from contraction for the first time in four months.

Survey compiler IHS Markit said that respondents cited improving confidence among clients and a reduced drag on demand from Brexit-related uncertainty.

As a consequence, optimism among construction firms was the strongest since May. Just under half of those surveyed (45%) forecast a rise in output over the year ahead, while only 9% anticipate a reduction. However, IHS Markit noted that the degree of confidence remained softer than that seen at the start of 2016.

Also on Tuesday, the IMF predicted that the UK will be the fastest growing G7 country this year. Revising its earlier estimates, the organisation said that it expects the UK to avoid recession in 2016, with growth of 1.8%, but warned of a longer-term impact following the vote to leave the European Union.

Next year, the IMF expects the UK economy to grow by just 1.1% — lower than forecast immediately after the EU referendum.

In the Markit/CIPS survey, a number of respondents noted that Brexit-related anxiety has receded among clients. However it remained a factor behind the ongoing decline in commercial building work, said Tim Moore, senior economist at IHS Markit.

“Construction firms appear reasonably optimistic about the near-term outlook, with confidence linked to the fastest rise in new orders since March and a more upbeat economic news flow in general,” Moore commented. “However, the sector remains on a much weaker growth trajectory than seen at the start of 2016, which contrasts with the export-led surge in manufacturing production during September.”

He added: “Not only are UK construction companies feeling the impact of subdued investment spending relative to earlier this year, but the weak pound has contributed to a sharp acceleration in cost inflation. There were again widespread reports that domestic suppliers had acted quickly to pass on higher imported raw material costs, despite softer demand conditions in recent months.”