NatWest signals strong growth for construction SMEs

NatWest’s index is a key indicator of the health of the UK SME construction economy. A reading over 50.0 indicates growth or expansion, while a reading under 50.0 suggests contraction.

The data pointed to a robust rise in total construction activity among SMEs with output growth accelerating to its fastest rate since January. Firms often linked the rise in activity to improved demand for construction work and an influx of new contracts, in part due to a post-election rebound in clients’ willingness to spend.

Total new business expanded at the sharpest pace for two-and-a-half years in September.  

In the latest survey, SMEs in the construction sector also reported a marginal upturn in employment numbers in September. Overall employment has now increased in four of the past five months, mostly reflecting greater workloads and efforts to boost business capacity.

Construction business activity expectations over the next 12 months remained positive in September. Construction businesses attributed confidence to improving domestic economic conditions, stronger demand for new house building projects and hopes of healthier order book volumes. That said, the degree of optimism eased from August’s 30-month high to its weakest since March.

However, there was a further uplift in operating costs signalled by SME construction companies in September, largely reflecting increased raw material prices. Following four successive monthly rises in the respective seasonally adjusted index, the rate of cost inflation was its strongest for nearly a year and a half.

Meanwhile, SME construction firms indicated that supplier performance improved to the weakest degree since February. This was linked to a renewed upturn in demand for construction products and materials.

Laura Capper, head of construction and manufacturing at NatWest, said: “September’s rise in construction activity among SMEs is a clear sign that demand is rebounding, driven by new contracts and a renewed willingness to invest after the election. While the sector is seeing growth, particularly in new housing projects, the pressure from rising material costs remains a concern. Managing these cost increases will be key for SMEs to sustain momentum in the months ahead, but the positive outlook and increasing workloads suggest the sector is on solid ground for continued expansion.”