New orders record steepest increase for six years

Output in the UK construction sector sustained its recovery during November with the rate of expansion accelerating from the previous month, led by fastest rise in new orders since October 2014.

New orders record steepest increase for six years

There were also positive signals for the near-term outlook as new order volumes expanded at the quickest pace for just over six years. However, employment trends remained relatively weak across the construction sector and stretched supply chains resulted 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. The latest reading pointed to a solid increase in total construction output, although the rate of growth remained softer than the peak seen in July.

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.

New business volumes expanded at a robust and accelerated pace in November. The latest improvement in construction order books was the steepest since October 2014, which survey respondents attributed to a recovery in tender opportunities and improving confidence among clients. Greater workloads also contributed to a strong increase in purchasing activity during November, with the rate of growth reaching its highest for just over six years.

Rising demand for construction products and materials placed additional pressure on supply chains in November. This was signalled by another sharp lengthening of lead-times among vendors. Survey respondents often commented on transport delays and stock shortages. Meanwhile, input costs increased at the fastest rate since April 2019 amid stretched supply across the sector, with construction firms commenting on particularly sharp rises in timber prices.

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, 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, added: “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.

“The energy behind this success was primarily the housing sector as sales remained buoyed by consumers rushing to meet the stamp duty relief deadline less than four months away and a rise in home improvement projects for locked down citizens.

“The below par performance of supply chains, overstretched by the bulk of this renewed demand held back further progress as lead times increased and shortages scuppered agile builders ready to get going again.”

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