Construction optimism close to six-year low despite October rebound

Britain’s construction sector rebounded in October, but business optimism hit its weakest level in almost six years as Brexit delayed final decisions on projects.

The closely-watched Markit/CIPS UK Construction purchasing managers’ index (PMI) showed a stronger-than-expected reading of 53.2 in October, up from 52.1 in September, with the fastest growth in civil engineering.

A reading above 50 indicates growth. Economists had expected the reading to decline to 52, according to consensus figures from Pantheon Macroeconomics.

But uncertainty hovered over the industry as firms reported the lowest level of optimism on growth prospects for nearly six years.

“Although total UK construction activity rose at a stronger pace in October, the underlying survey data paint a less rosy picture for the sector towards the end of the year,” said Trevor Balchin, economics director at IHS Markit.

“New contracts increased at only a modest pace, and firms were the least optimistic regarding the 12-month outlook for nearly six years.

“Construction companies again linked uncertainty to Brexit negotiations, which influenced delays to final decisions at clients.”

All three of the categories monitored showed growth, with civil engineering activity rising at its fastest since July 2017.

This made it the best-performing segment for the first time since January, as house-building and commercial construction notched up slower growth.

The slower rise in activity in the housing sector came amid poor performance in UK property sales.

Nationwide Building Society revealed on Thursday that annual house price growth has slowed to its lowest levels since May 2013.

The latest construction data also showed a slower rise in new business volumes, with firms citing tough competition and delays to decisions.

Despite the dip in confidence, construction firms continued to take on more employees, which Mr Balchin said suggests “they are not expecting an imminent contraction in demand”.

But growth in the overall volume of inputs purchased was at its slowest rate for seven months in October as construction companies took a more cautious approach.

Duncan Brock, group director at the Chartered Institute of Procurement & Supply, said: “These results point to the sector getting stuck in the mud as we approach March 2019, and, with ongoing supplier delays and stock shortages, the sector may not be able to respond quickly enough anyway should there by a sudden upturn in fortunes.”

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