UK construction managed to return to growth in September, but business optimism plummeted as new orders fell.
According to S&P Global’s Construction Purchasing Managers’ Index (PMI), activity unexpectedly improved last month, rising for the first time since June.
The index rose to 52.3 during the period from 49.2 in August, showing a return to growth as supply chain issues eased. Any reading above 50 indicates growth.
However, business optimism hit its lowest level since July 2020 amid stalled orders, rising interest rates and the growing threat of recession.
Homebuilders reported activity increased, with growth hitting a five-month high, while commercial work rose only marginally and civil engineering activity fell for the third month in a row.
Construction companies said clients were slow or reluctant to sign on to projects due to inflation concerns, tight budgets and worries about the economic outlook.
Weak customer demand contributed to a slight reduction in buying activity across the construction industry. Survey respondents also suggested that a turnaround in supplier performance led to a reduction in inventory build.
However, this came as supply shortages eased in September, with delivery delays being the least prevalent since February 2020.
Read more: Pound rally falters as Fitch downgrades UK credit outlook
Meanwhile, job growth accelerated from August’s 17-month low. About 21% of the survey panel reported an increase in membership, while only 8% reported a decline.
The increase in the labor force reflects efforts to build business capacity, although construction companies continued to cite shortages of candidates to fill vacancies and strong wage pressures.
Average cost charges rose sharply in September, but the headline inflation rate hit its lowest level since February 2021.
Survey respondents noted escalating energy costs and rising prices paid at all levels for building products and materials.
Lower fuel prices and improved transportation availability were cited as factors that helped moderate the overall pace of cost inflation in September.
Read more: Does the Kwarteng tax reversal mean that the interest rate will not reach 6% as expected?
John Glen, chief economist at the Chartered Institute of Procurement & Supply, said: “Developments in the UK economy gave the sector food for thought as supply chain officials reported higher levels of buying. last month and the new orders index slipped to its lowest since May 2020.
“Although the headline index showed growth after two months of contraction, the devil is in the details pointing to declining customer confidence, a tough UK economy and a recession upon us.”
Watch: How does inflation affect interest rates?