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2020 / 2021 Edition

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Construction growth slows in October

Total Activity Index

Sustained recovery in output volumes but rate of expansion slowest for five months

UK construction companies reported a sustained recovery in output volumes during October, but the rate of expansion was the slowest for five months. This was signalled by a fall in the headline seasonally adjusted IHS Markit/CIPS UK Construction Total Activity Index to 53.1, from 56.8 in September. The index has registered above the 50.0 no-change mark in each month since June.

House building was by far the best-performing area of construction activity in October (index at 62.4) with the speed of recovery easing only slightly since September. Survey respondents often commented on pent-up demand and a boost from improving housing market conditions in recent months.

Higher levels of overall construction work also reflected another rise in commercial activity (index at 52.1), although the latest expansion was the weakest for five months. Meanwhile, civil engineering activity (index at 36.4) dropped for the third month running and the rate of decline accelerated to its fastest since May.

October data indicated a robust increase in new work received by construction companies. The latest improvement in new order books was the strongest since December 2015. Higher levels of new business were mostly attributed to the start of projects that had been delayed earlier in the coronavirus pandemic and a continued upturn in demand for residential building work.

Looking ahead, construction companies reported optimism towards their prospects for the next 12 months, despite concerns about the wider economic outlook. Around 45% of the survey panel anticipate a rise in output during the year ahead, while only 14% forecast a reduction.

Tim Moore, economics director at IHS Markit, who compile the survey, said: ‘The construction sector was a bright spot in an otherwise gloomy month for the UK economy during October. Another sharp rise in house building helped to keep the construction recovery on track, albeit at a slower speed than in the third quarter of 2020. Commercial work also contributed to growth in the construction sector, while civil engineering remained the main area of concern as activity in this category dropped for the third month running.

‘New orders,' he added, 'improved at the sharpest rate for nearly five years in October, suggesting a positive near-term outlook for construction activity. However, survey respondents commented on renewed economic uncertainty and concerns about the sustainability of the recovery as pent-up demand begins to wane.’

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