Construction industry hit by recession as PMI falls to three-month low

According to the latest PMI data by IHS Markit and CIPS, the headline construction PMI fell to a three-month low of 50.4 in November 2022, down from 53.2 in October 2022, reversing the previous upward trend which had been driven by a surprising increase in commercial activity.

The recent fall indicates a slowdown in construction activity, with the knock-on impact of soaring energy prices and inflation now more apparent, confirming RSM’s previous predictions that a truer picture would be painted towards the end of Q4 2022 with the industry being hit by the first signs of the recession.

Kelly Boorman, partner and national head of construction at RSM UK, said: ‘Following a surprising uptick in September and October, the latest fall in the headline construction PMI for November paints a truer picture of the major disruption faced by the industry, as business confidence drops to the lowest level in two and a half years. There has been a significant slowdown in construction activity, with higher borrowing costs adding another layer of financial pressure for businesses as they grapple with reduced demand. In addition, as an energy-intensive industry, energy prices remain a real concern, especially with the impact of inflation on the supply chain.

‘The government has curbed spending on large infrastructure projects, which – along with house building stalling – explains why business confidence is plummeting as the recession takes hold. Commercial activity was the only index to rise slightly, although this is likely due to renegotiation of pricing and power within the supply chain, as costs to retender would be at a significant increase. This is further reflected in input buying sitting at the highest level since July, as raw material availability also improved.’

She added: ‘The economic outlook in the UK is certainly dampening future activity and business confidence in the sector, and with November 2022 seeing the highest number of insolvencies since February 2020, further challenges lie ahead. There’s significant risk within the supply chains due to higher borrowing costs and falling cash flows, and it’s likely that restructuring activity will continue to accelerate in the marketplace. Now more than ever, the industry needs government investment to help drive long-term improvement and innovation.’