Construction sector shrinks for second month in a row as recession signals brighten

Construction activity shrank for the second month in a row in a sign the UK economy’s malaise is spreading to every sector, a closely watched survey published today showed.

S&P Global and the Chartered Institute of Procurement and Supply’s purchasing managers’ index (PMI) edged higher to 49.2 last month, up from 48.9 in July.

Despite climbing, the PMI remained below the 50 point threshold that separates growth and contraction.

Stagnating demand driven by intense concern about the health of the UK economy weighed on the country’s construction sector.

“The UK construction sector looks set to be in for a challenging period,” Andrew Harker, economics director at S&P Global Market Intelligence, said.

The survey chimes with a separate PMI published yesterday that revealed Britain is teetering on the brink of a recession. The country’s combined services and manufacturing PMI was revised down to below the 50 point mark.

Surging inflation fuelled by scorching energy prices are putting households and businesses under intense strain, prompting experts to predict the UK is headed for a long recession starting at the end of this year.

New prime minister Liz Truss is expected this week to sign off further measures to support the economy through the inflation spike.

Soaring costs are squeezing businesses’ margins, prompting them to mothball construction projects. New order growth slumped to its weakest level since June 2020, S&P Global and CIPS said.

On a bright note, construction firms continued to hire at a strong clip, reflecting the resiliency of the UK jobs market amid the economic slowdown.

However, “concerns around the wider economic environment impacted hiring decisions,” S&P Global and CIPS added.

A partial unralling of supply chain backlogs pushed the rate of cost inflation down to the lowest level since February 2021.