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UK construction activity continues to rise but new orders fall

UK construction A builder working for Taylor Wimpey builds a roof on an estate in Aylesbury, Britain, February 7, 2017.  REUTERS/Eddie Keogh
UK construction sector continues expanding but outlook sours. Photo: Eddie Keogh/Reuters

The UK's construction sector output rose at the fastest pace in five months during October, but new orders and business optimism fell sharply.

The S&P Global/CIPS UK Purchasing Managers Index (PMI) survey of construction companies gave the sector a score of 53.2 in October, up from 52.3 in September.

It is the highest reading since May and the second month of growth — any score above 50 is considered to show the sector is expanding.

Higher levels of business activity were attributed to a combination of new project starts and strong pipelines of unfinished work.

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Tim Moore, economics director at S&P Global Market Intelligence, which compiles the survey, said: “Construction output has staged a modest recovery after the downturn seen through much of this summer, with growth hitting a five-month high in October.

“Commercial work was the best-performing area of activity as delayed projects moved forward, while increased house building also provided a positive contribution to overall workloads.”

Despite the overall growth in output, new work fell for the first time since May 2020, suggesting that rising borrowing costs could be starting to impact demand.

Moore added: “However, the forward-looking survey indicators highlight that growth will be harder to achieve in the coming months as rising borrowing costs, economic uncertainty and cost constraints all had a negative influence on order books in October.

The reduction in total new work was the first since May 2020 and this fuelled increased concerns about longer-term tender opportunities.

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Commercial building companies performed the best, according to the survey. Meanwhile residential builders managed to grow but the civil engineering sector shrunk for the fourth month in a row.

Moore said business optimism about the year ahead slumped and was by far the weakest since the early months of the pandemic.

"Construction firms cited concerns about a broad-based decline in client demand due to cutbacks on non-essential spending among clients, although some noted that growth linked to green energy projects, planned infrastructure spending and success in niche markets could help to offset the UK economic headwinds," he said.

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