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‘Robust’ increase in new construction orders in October

There was a “robust” increase in new orders received by construction companies in October, with the latest improvement in new order books at its strongest level since December 2015, according to a survey of buyers.

The higher levels of new business were mostly attributed to the start of new projects that had been delayed earlier in the coronavirus pandemic and continued demand for residential building work.

But the rate of growth in in output among construction companies in October was at its lowest level since June, according to the latest IHS Markit/CIPS UK Construction Total Activity Index for October. The index recorded a score of 53.1 last month (where a score of 50.0 indicates no change), down from 56.8 in September. The index has registered above the 50.0 mark in each month since June.

Buyers reported that house building was the best-performing area of construction activity during October (scoring 62.4). There was also another rise in commercial activity (52.1), although it was its weakest level of growth for five months. By contrast, civil engineering activity dropped for the third month running (36.4).

The rebound in construction activity after the shutdowns seen during the initial lockdown period continued to put pressure on supply chain capacity in October. This was signalled by another sharp lengthening of delivery times for construction products and materials, with the latest deterioration in supplier performance the steepest since June. Construction firms often noted that demand for building materials had outstripped supply in October, which resulted in higher average cost burdens. The rate of input price inflation accelerated to its fastest since April 2019.

Nonetheless, 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, which compiles 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.

"Supply chain difficulties persisted in October, as signalled by a sharp lengthening of delivery times for construction products and materials. Purchasing prices increased as a result of demand outstripping supply for construction inputs, with the rate of cost inflation hitting an 18-month high in October.

"New orders 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."

Commenting on the findings, Mark Robinson, Scape Group chief executive, said: “As England enters a second lockdown, the construction industry remains the best-placed sector to drive economic recovery. however, the ramping up of restrictions and the political turmoil in America is likely to further dent interest in private infrastructure investment. As such, public sector projects must continue to be at the forefront of government thinking. With the full weight of government spending behind it, the construction industry stands ready to deliver transformational change across the public estate which will not only nurture the type of placemaking needed to stimulate the return of private capital but also the social cohesion for a better society on the other side of the pandemic.”

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