UK construction activity falls to lowest since 2020 as civil work plummets, PMI shows

LONDON (Reuters) -Britain's construction sector contracted in October at the fastest pace in over five years, with civil engineering activity declining at the fastest pace since the pandemic, due to weak demand and uncertainty ahead of finance minister Rachel Reeves' budget, a survey showed on Thursday.

S&P Global's monthly purchasing managers' index for the construction industry fell to 44.1 in October from 46.2 in September, extending its longest downturn since the global financial crisis. 

Last month's PMI remained well below the 50 mark that divides growth from contraction, and a Reuters poll forecast of 46.7. 

Civil engineering activity was at its weakest since May 2020, when lockdowns during the COVID pandemic halted construction work. 

Activity in the residential building sector last month slowed at the sharpest pace since February, with its subindex at 43.6, while commercial building fell marginally.

"Reduced workloads were again widely attributed to risk aversion and delayed decision-making among clients, which contributed to a slower-than-expected release of new projects," said Tim Moore, economics director at S&P Global Market Intelligence.

"Subdued demand in the wake of heightened political and economic uncertainty also led to the steepest drop in input buying since May 2020."

The decline in total new orders accelerated in October. Survey respondents cited weak demand due to political and economic uncertainty, and delays in new project starts.

Recent business surveys have also shown similar concerns about investment, hiring and demand due to concerns about Reeves' annual budget on November 26, which is widely expected to include further tax rises.

The pace of job-shedding also accelerated in October, with the employment index at its lowest since August 2020, with firms citing less work and higher payroll costs.

But input inflation costs were the weakest in a year and the outlook for the coming 12 months was the highest since July, partly due to the prospect of lower borrowing costs. While the Bank of England is expected to hold interest rates at 4% on Thursday, financial markets on Wednesday were still pricing in a 62% chance of a 25 basis-point rate cut by the end of the year.

  The all-sector PMI, which combines the services, manufacturing and construction sectors, rose to 51.4 in October from 49.7 in September.

(Reporting by Suban Abdulla; Editing by Hugh Lawson)