UK construction output rebounds, cost pressures jump, PMI shows

Britain’s construction sector grew at its fastest pace in nearly two-and-a-half years in September, helped by a sharp jump in civil engineering and an upturn in house-building, but costs faced by firms escalated, an industry survey showed on Friday.

There was also concern among some companies about possible spending cuts and tax increases in finance minister Rachel Reeves first budget later this month.

The S&P Global/CIPS UK Construction Purchasing Managers’ Index jumped to 57.2 in September – its highest since April 2022 – from 53.6 in August and well above economists’ average expectation of 53.3 in a Reuters poll.

Firms said lower borrowing costs and political stability after July’s landslide election win by Prime Minister Keir Starmer’s Labour Party were fuelling the growth acceleration.

“A combination of lower interest rates, domestic economic stability and strong pipelines of infrastructure work helped to boost order books in recent months,” Tim Moore, economics director at S&P Global Market Intelligence, said.

“Survey respondents cited rising sales enquires since the general election, as well as lower borrowing costs and the potential for stronger house-building demand as factors supporting business activity expectations in September.”

The Bank of England is expected to cut interest rates again at its next meeting in November after holding borrowing costs at 5% in September. It made its first reduction in four years in August.

Governor Andrew Bailey said on Thursday that the central bank could move more aggressively to cut interest rates if inflation pressures continued to weaken.

S&P Global’s gauge of civil engineering rose to its highest level since June 2021, when Britain’s economy was bouncing back from the coronavirus pandemic slump. Infrastructure projects linked to energy security and renewables boosted the sector.

Housing activity expanded at the fastest rate in 30 months, while commercial building growth was the strongest since May.

However, the PMI’s gauge of business optimism struck a five-month low with companies concerned about the possibility of cutbacks to major public sector projects and uncertainty about Reeves’ inaugural budget statement on Oct. 30.

Reeves has warned some taxes might go up as the new government seeks to boost public services and investment.

Construction firms also said higher prices for raw materials led to the steepest increase in input costs in 16 months.

The all-sector PMI, which combines the services, manufacturing and construction sectors, fell to 53.0 in September from 53.8 in August but was still comfortably above 50 which indicates growth.