The November purchasing managers’ index, compiled by S&P Global, scored 50.4, putting it just marginally above the 50.0 no-growth mark. September and October had seen a modest return to growth after the negative territory seen in July and August, but it appears perilously close to slipping back below 50 again.
A number of survey respondents noted that higher borrowing costs and worries about the economic outlook had curtailed construction activity.
Expectations for business activity growth during the year ahead continues to slide, with optimism now at its lowest level for two-and-a-half years, the survey found. Aside from the levels seen at the start of the pandemic, the degree of positive sentiment was the joint-weakest since December 2008.
Commercial work was the only segment to register an overall rise in business activity in November (index at 51.1). House-building activity stalled (index at 50.0), ending a three-month period of marginal expansion. Higher mortgage rates and falling consumer confidence were cited as factors holding back residential activity.
Civil engineering activity (at 46.7) declined for the fifth consecutive month. The latest reduction was the sharpest since August. Lower volumes of output were mainly linked to a lack of new work to replace completed projects.
November data pointed to modest increase in total new orders across the construction sector, which contrasted with a slight decline in October. However, the rise in new business intakes was much weaker than seen on average in the first half of 2022. Survey respondents often noted that weaker domestic economic conditions had acted as a headwind to client spending.
Employment numbers continued to increase in November, but the rate of job creation eased to its slowest since February 2021. Construction companies suggested that concerns about rising costs and weaker growth had led to more cautious hiring policies.
In contrast to the slowdown in staff recruitment, latest data signalled the fastest increase in input buying since July. Higher levels of purchasing activity were linked to rising workloads and improved raw material availability, although some cited efforts to place orders ahead of supplier prices hikes.
Average cost burdens increased sharply in November, which was linked to rising energy prices, tight supply conditions and general inflationary pressures. However, the overall rate of input cost inflation eased to its least marked since January 2021, partly due to softer commodity prices.
Looking ahead, around 29% of the survey panel anticipates a rise in business activity in 12 months’ time, while 26% forecast a decline. This suggests the lowest degree of confidence since May 2020.
Tim Moore, economics director at S&P Global Market Intelligence, which compiles the survey, said: “Stalling house building activity contributed to the weakest UK construction sector performance for three months in November. Survey respondents noted that new residential building projects had been curtailed in response to rising interest rates, cancelled sales and worries about the economic outlook.
“Construction growth was largely confined to the commercial segment, but even here the speed of expansion slowed considerably since October as client confidence weakened in response to heightened business uncertainty. At the same time, a lack of new work to replace completed projects resulted in another fall in civil engineering activity.
“The number of construction firms anticipating a rise in overall business activity during the year ahead exceeded those forecasting a decline by only a very fine margin during November. Moreover, disregarding a three-month period of negative sentiment at the start of the pandemic, our survey measure of business expectations across the construction sector was the joint-weakest since December 2008.”
John Glen, chief economist at the Chartered Institute of Procurement & Supply, said: “The small uplift in activity in November did little to dispel builders’ fears about the future as optimism fell to the same level as December 2008 during the last recession and to one of the same lows seen during the pandemic.
“This gloomy view was fuelled in part by continuing shortages of key materials such as steel and timber along with skilled labour, affecting job hires which rose at the slowest pace since February 2021. As new order growth remained below the 2022 average to date, builders were becoming hesitant about hiring too many labourers and there was some mention of shedding jobs over fears of the strength of the economy in 2023.
“Overall, it was civil engineering that remained steadfastly stuck in the mud, with the fastest fall in activity since August. Client hesitancy, concerns around the cost of materials and doing business weighed heavily on the sector which recorded the fifth consecutive monthly fall in activity. Residential building also appears to have run out of steam as greater borrowing costs continue to dampen demand.
“Purchasing activity remained buoyant as businesses concerned about higher costs and potential delays reportedly ordered more than they needed, with delivery times increasing for the fourth consecutive month. Construction companies now have a tightrope to walk in terms of being ready for recovery and cautious around investment until the road is clear for sustainable building opportunities ahead.”
Fraser Johns, finance director of construction contractor Beard said: “Despite the marginal rise in overall construction output, inflationary pressures and the rising cost of commodities like fuel are starting to take their toll on business activity.
“However, none of these trends have arrived out of the blue. In reality, the sector has been preparing itself for exactly this situation as the year has progressed and is already working within the constraints imposed by a tightening economy.
“While we should not underplay the downturn in some areas of the sector, the fact that commercial work continues to show a rise in business activity demonstrates that there is still some confidence in the market and developers are continuing to commit to plans.”
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