Construction output increased in October but growth is still softer than earlier in the summer and ongoing supply shortages are persisting across the industry, 

The latest monthly PMI survey reported that October data indicated that business activity gained speed across the UK construction sector, but growth remained much softer than the 24-year high seen in June. Construction companies continued to report widespread supply constraints and rapidly increasing purchase prices, although these trends were the least severe since April.

The headline seasonally adjusted IHS Markit/CIPS UK Construction PMI® Total Activity Index registered 54.6 in October, up from 52.6 in September, to signal a robust and accelerated rise in output volumes. This index has now posted above the crucial 50.0 no-change value in each of the past nine months and hit a peak of 66.3 in June.

House building (index at 55.4) replaced commercial work (55.2) as the best-performing category of construction work in October. The latest increase in residential work was the strongest for three months. Commercial construction also expanded at a quicker pace than in September, with survey respondents citing a sustained boost from looser pandemic restrictions. Meanwhile, civil engineering activity (51.4) increased only marginally in October.

New order growth was unchanged from September's eight-month low and much weaker than seen on average during the summer. Construction companies mostly commented on strong customer demand, but some suggested that supply shortages and escalating costs had hindered contract negotiations.

More than half of the survey panel (54%) reported longer delivery times among suppliers in October, while only 2% saw an improvement. Delays were overwhelmingly linked to haulage driver shortages and international shipping congestion. However, the number of construction firms reporting longer wait times for supplier deliveries was down from 63% in September and a peak of 77% in June.

The near-term outlook for construction growth remained positive in October. Just over half (52%) forecast an increase in output during the year ahead, while only 8% expect a decline. The degree of optimism improved slightly since September, despite some firms citing concerns about the impact of supply shortages and sharply rising costs.

Tim Moore, Director at IHS Markit, which compiles the survey said: “UK construction companies achieved a faster expansion of output volumes in October, despite headwinds from severe supply constraints and escalating costs. House building showed the most resilience, as signalled by the fastest rise in residential work for three months.

“However, the volatile price and supply environment added to business uncertainty and continued to impede contract negotiations. As a result, the overall rate of new order growth was unchanged from the eight-month low seen in September.

“There were widespread reports that shortages of materials and staff had disrupted work on site, while rising fuel and energy prices added to pressure on costs. Nonetheless, the worst phase of the supply crunch may have passed, as the number of construction firms citing supplier delays fell to 54% in October, down from 63% in September. Similarly, reports of rising purchasing costs continued to recede from the record highs seen this summer.”

Commenting on the figures, Mark Robinson, group chief executive at public sector procurement authority SCAPE, said: “Despite the ongoing volatility in the sector’s supply chain, construction output growth has remained in a league of its own and is a testament to the industry’s resilience.  Whilst still grappling with the speed and cost at which projects are being delivered, a renewed focus has been placed on the levelling up agenda following the chancellor’s sizeable cash injection to invest in the long-term future of regional communities.”

Jan Crosby, head of infrastructure, building and construction at KPMG UK, said: “The construction sector has had every challenge thrown at it this year and yet in the face of this ongoing volatility there is still huge demand for projects, which firms are working incredibly hard to deliver. This can be seen in the welcome spike in activity this month.

“As well as the much-reported supply chain delays and lack of lorry drivers, the sector has had to deal with labour shortages, including appointing sub-contractors. But firms are resilient, and I’d expect to see continued growth in demand for energy efficient buildings to drive energy retrofitting and services, as well as new build growth where existing buildings are no longer seen as green. 

“The sector is confident it can meet demand. As we look ahead to 2022, firms will be hoping the right support is put in place to fix these challenges to help drive further growth.”