Construction companies are seeing their fastest growth in two years as the recovery gathers pace

The UK construction sector grew at its fastest pace in more than two years in September, new data shows, amid a surge in large-scale projects and greater confidence in the housebuilding sector.

The latest S&P Global Construction Purchasing Managers’ Index (PMI) hit 57.2 in September, up from 53.6 in August.

Any reading above the 50.0 threshold indicates that industry activity is increasing, while anything below indicates activity is contracting.

This result was above the level of 53.1 predicted by analysts and the highest reading since the beginning of 2022.

Tim Moore, director of economics at S&P Global Market Intelligence, said: “UK construction companies showed a marked improvement in output growth dynamics in September, driven by faster growth in all three main business categories.

“The combination of lower interest rates, domestic economic stability and a solid infrastructure pipeline has helped increase the order book in recent months.

“The launch of new projects contributed to a moderate increase in employment in September and a faster increase in purchasing activity in the construction industry.”

Civil engineering companies saw huge growth last month, driven in part by demand for renewable energy infrastructure and a general increase in work on large projects.

Meanwhile, homebuilders say growing confidence in the housing market has driven homebuilding to its fastest growth rate since March 2022.

Commercial construction firms said lower borrowing costs and political stability since the general election had boosted client spending.

However, the companies also said higher demand for raw materials and higher supplier wages led to the sharpest increase in production costs since mid-2023.

The signal of potential inflationary pressure in the sector will attract the attention of Bank of England economists, who will decide next month whether to cut interest rates.

Business optimism also fell to its lowest level since April, despite business growth, but remained higher than the low recorded in October last year.

Businesses across the economy reported falling optimism after the Labor government warned of “difficult choices” in its budget later this month.

Chief Secretary to the Treasury Darren Jones said: “We are focused on restoring economic stability and rebuilding the UK. This increase in business activity is clearly a positive sign, but there is still much work to be done as we pursue growth, which is our number one mission.”

Jordan Smith, chief technology officer at Thomas & Adamson, said: “The strong growth in civil engineering and interest in renewable infrastructure in particular – combined with the housing stimulus – suggests that the economic recovery is progressing and that the government’s investment commitments are being translated into real projects.

“However, it is essential to maintain this commitment to meet the needs of the industry and avoid projects being held up or stuck in their infancy.

He added: “A potential issue requiring close monitoring is a renewed increase in cost inflation, which developers will need to consider carefully in their project plans.”