Construction sector growing but weak pound is raising costs

Commenting on the latest Markit/CIPS construction purchasing managers index, Kelly Boorman, RSM’s Head of Construction said:

'The slight rise in the construction PMI in October reflects a further increase in business activity for the UK construction sector, with residential property being the key driver of growth.

‘The rise in new orders during the month was particularly encouraging, although the rate of growth eased slightly, suggesting some Brexit-related uncertainty among clients. Indeed, business confidence regarding growth prospects for the year ahead dropped to levels not seen since May 2013. Looking ahead, the warnings today from the National Institute for Economic and Social Research that inflation will quadruple to 4 per cent next year could also result in dampened demand, although the weak pound is also driving interest from overseas real estate investors.

‘The weak pound is also leading to an increase in input costs, which rose by one of the fastest rates seen over the last five years, with suppliers seeking to pass on higher imported raw material prices to construction companies.

‘No doubt, some construction companies will be looking to work with suppliers who are willing to share the burden of these increased prices while others may well look to source more from UK-based suppliers.

‘Looking longer term, many firms will be buoyed by the recent decisions by the Government to press ahead with Hinkley Point, HS2 and Heathrow. While the impact of these decisions will take some time to be fully felt, they nevertheless promise some exciting opportunities for UK civil engineering, commercial and residential construction firms.’