Growth in new orders is highest for six years

The latest monthly PMI figures for November have indicated a sustained recovery in UK construction output, with the fastest rise in new orders since October 2014 leading to the strongest degree of business optimism across the construction sector since January. 

However, the rate of growth remained softer than the peak seen in July and employment trends remained relatively weak, with stretched supply chains resulting in a sharp increase in average cost burdens.

At 54.7 in November, up from 53.1 in October, the headline seasonally adjusted IHS Markit/CIPS UK Construction Total Activity Index registered above the 50.0 no-change value for the sixth consecutive month.

All three broad categories of activity saw higher output in November. Construction companies indicated that house building was the best-performing area in November (index at 59.2), despite the rate of growth easing since October. 

Civil engineering returned to growth in November (52.3), while commercial work increased only marginally (51.9) and at the slowest rate for six months.

Employment remained a weak spot, but the latest fall in staffing numbers was the slowest since February. Despite rising business activity and incoming new work, some firms reported ongoing job cuts amid efforts to reduce overheads.

Around 51% of the survey panel forecast a rise in business activity during the year ahead, while only 16% predict a decline. The resulting index pointed to the strongest degree of business optimism across the construction sector since January.

Tim Moore, economics director at IHS Markit, which compiles the survey, said: "UK construction output stayed on a recovery path in November and there were signs that the main growth driver has transitioned from catch-up work to new projects. The latest increase in new orders was the strongest since late-2014, with construction firms reporting a boost from rising client confidence and the release of budgets that had been held back earlier in the pandemic.”

Duncan Brock, group director at the Chartered Institute of Procurement & Supply, said: "The sector is moving back to strength with another solid rise in output and gaining more momentum as new orders rose last month at the highest rate since October 2014. Despite this accelerated improvement overall, the employment picture remained cheerless. 

“In a bid to dampen down the effects of the sharpest rise in input costs since April 2019, builders were reducing headcounts to keep their own heads above water leading to another fall in job numbers. As more work fills the sector’s pipelines, the necessity to recruit is likely to become more urgent, and the shortfall could be reversed barring further disruption."

Mark Robinson, group chief executive at public sector procurement specialists SCAPE, said: “Having provided the cornerstone for the economic recovery to date, the public sector will offer the most significant opportunities for the industry’s continued growth as we look to build back better through 2021. The government has served to emphasise this point through the new UK Infrastructure Bank and levelling up fund announced in the chancellor’s spending review, which will go some way to shaping the outlook for contractors next year.

“For contractors looking to firm up their pipelines, cultivating strong and lasting relationships with the public sector will require continued investment in sustainable, social value-driven delivery – themes we expect to see feature heavily when the government’s new Construction Playbook is launched in the coming weeks.”

Max Jones, director in Lloyds Bank’s infrastructure and construction team, said: “There’s cause for optimism among contractors as they welcome in 2021. A flurry of positive announcements surrounding vaccinations provides hope that sites will be back to full capacity in the near future, while the recent spending review’s focus on infrastructure investment in the regions should give contractors a boost of optimism.

“Firms know that as we look to return to normal next year, they’ll need to have more in their arsenal to be competitive for contracts. Many will be embracing sustainability as a way of showcasing their suitability for future work, alongside improving their payment practices to better support other businesses in the supply chain.”

Kate Kirby, partner in the construction and infrastructure practice at DWF, said: "Coronavirus has hit all parts of the economy hard and unfortunately, employee numbers have dropped once again despite construction continuing during the latest lockdown measures. However, with the news that a vaccine is to be rolled out imminently, coupled with more testing facilities around the country and in airports, it is hoped 2021 will provide greater job security for those working in the construction sector and beyond."

November’s PMI data was collected between 12-27 November 2020.