UK construction sector shrinks for second month in a row as inflation bites

·2-min read
The construction sector fell for the second month in a row in August. Photo: Niall Carson/PA
The construction sector fell for the second month in a row in August. Photo: Niall Carson/PA

Construction companies in the UK have suffered a second straight month of contraction amid global uncertainty about the outlook for the inflation-hit economy.

Activity in the the sector fell in August after dropping for the first time in 18 months in the month before.

The S&P Global/CIPS construction purchasing managers’ index (PMI) for construction scored 49.2 in August, up fractionally from 48.9 in July, and still below analysts consensus of 52.

A number below 50 indicates a contraction, while one above that mark signifies growth.

New orders grew at the weakest pace since June 2020 and fears about the industry and the wider economy hit confidence, according to Andrew Harker, economics director at S&P Global Market Intelligence.

Job creation also slowed but price pressures were their lowest since February last year.

But that could provide a potential silver lining for the Bank of England, which is monitoring the impact of inflation in the labour market, wage spiral and the broader economy.

Read more: UK recession fears mount as private sector contracts in August

The numbers come a day after the latest figures for the services sector showed the slowest rate of growth in 18 months, with PMI dropping to 50.9 in August from 52.6 the previous month.

The correspondent reading for manufacturing, published last week, was 46.

While the all-sector PMI fell to 49.6 from 51.8 in July – its lowest since January 2021, underscoring the challenge facing new UK prime minister Liz Truss.

Harker said: "The UK construction sector looks set to be in for a challenging period, according to the latest PMI data.

"Not only did construction activity fall for the second month running, but a range of indicators from the survey pointed to further weakness ahead.

"New orders slowed to a crawl, while concerns about the sector and the wider economy led to a drop in confidence."

It comes as UK inflation hit 10.1% in the 12 months to July – the highest level since 1982 – on the back of soaring food, energy and fuel costs.

Watch: How does inflation affect interest rates?