A recent survey by NatWest highlights that small and medium-sized construction firms have experienced the largest growth in new business activity in two and a half years.

Leaders in the construction industry attribute this upturn to a rise in demand for residential projects, reduced borrowing costs, and an overall boost in business confidence following the recent general election.

Employment figures have also shown a slight increase as construction companies hire more workers to accommodate the rising demand. For instance, Pentalec, a building services contractor based in Kent, has expanded its workforce from 59 to 85 employees this year.

However, this positive trend in construction contrasts with a broader mixed outlook revealed by the NatWest SME Growth Tracker. This index evaluates the business performance and sentiment of UK firms with fewer than 250 employees, drawing responses from 850 companies across Britain based on research conducted by S&P Global.

Overall, the growth rate for small and medium-sized enterprises in the last quarter reached its lowest level since October 2023, primarily due to a decline in the service sector. Many service industry respondents noted a significant drop in activity, marking the steepest decline in a year, with some attributing it to clients’ hesitance ahead of the upcoming budget announcement by the Chancellor on October 30.

Despite this, service sector leaders maintain a positive outlook for their future, with ongoing recruitment efforts outpacing those of larger businesses. Job creation in September reflected a strong commitment to growth.

Conversely, manufacturers faced a downturn in confidence, which fell to its lowest level in 2024 thus far, along with a reduction in staff numbers. The decline in employment is likely due to companies refraining from replacing departing employees rather than widespread layoffs, primarily in response to high labor costs. Additionally, survey participants reported increases in shipping fees, energy prices, raw materials, and packaging costs.

Laura Capper, who oversees construction and manufacturing at NatWest, remarked on the mixed findings of the research.

“While the decline in output and new orders presents challenges for small and medium-sized manufacturers, it’s promising to note that the cutback in staffing is modest and confidence in future growth persists,” she stated. “The emphasis on new product launches and strategic growth initiatives suggests that many businesses are still aiming for long-term success, even amid current challenges.”

The NatWest survey further explored business leaders’ opinions regarding investments in sustainability, revealing that only 34% of firms consider sustainability a significant priority for the upcoming year, marking a two-point drop since the second quarter of 2024—the lowest level since the survey’s inception in 2020.