Construction contraction slows but industry mood remains low

The UK construction sector saw a slight uptick in activity in September, but it remains firmly in contractionary territory.
The latest purchasing managers’ index (PMI) registered 46.2, an increase from August’s 45.5 but still close to the five-year low recorded in July.
Matt Swannell, chief economic advisor to the EY ITEM Club, said: “The slight recovery in the PMI over the last two months has done little to erase July’s fall to a five-year low. All three construction sub-sectors – residential, commercial, and civil engineering – continued to show a fall in activity as the pipeline of new work narrowed and order books declined for the ninth consecutive month.”
However, he suggest the weak PMI figures should be taken with a pinch of salt. He continued: “So far this year, the construction PMI has provided an unreliable indication of activity in the sector. Official estimates have reported output growth, but the construction PMI has slumped.
“Therefore, the weakness in the PMI should be taken with a heavy pinch of salt as it probably reflects downbeat business sentiment rather than a true shift in activity.
“Continued speculation around Autumn Budget tax rises will have weighed on the construction sector’s mood, compounded by signals from the Bank of England that it is unlikely to cut interest rates again this year.”
Mr Swannell concluded: “The outlook for the construction sector is mixed. Rising government investment and reforms to increase housebuilding will provide demand with some support.
“However, ongoing uncertainty around the prospect of further tax rises and policy reforms could cause some private sector projects to be delayed while businesses continue to grapple with high labour costs.”