Housebuilding records only expansion in construction sector

Housebuilding was the only broad area of construction activity to register an expansion in September. However, growth momentum eased to a six-month low amid reports citing worries about less favourable market conditions ahead.

“House building slipped down a gear in September, which highlighted that fragile confidence has spread across all three key market segments,” said Tim Moore, Associate Director at IHS Markit and author of the IHS Markit/CIPS Construction PMI. “Some firms suggested that the loss of momentum for residential construction reflected worries about the outlook for ultra-low mortgage rates and less upbeat demand expectations.”

Overall, September data revealed a difficult month for the UK construction sector, as a sustained drop in new work led to the first reduction in overall business activity since August 2016.

The seasonally adjusted IHS Markit/CIPS UK Construction Purchasing Managers’ Index (PMI) registered 48.1 in September, down from 51.1 in August and below the crucial 50.0 no-change threshold for the first time in 13 months.

The latest reading signalled the fastest decline in overall construction output since July 2016. Lower volumes of construction work reflected marked falls in both commercial and civil engineering activity during September. The reduction in civil engineering work was the steepest for almost four-and-a-half years, which some firms linked to a lack of new infrastructure projects to replace completed contracts. The latest decline in work on commercial development projects was the second-sharpest since February 2013 (exceeded only by the post-EU referendum dip seen last July).

New business volumes dropped for the third month running in September, thereby suggesting a continued shortage of work to replace completed construction projects. Aside from the downturn seen around the EU referendum last year, the current period of decline is the longest recorded since early- 2013. More subdued demand led to another fall in sub-contractor usage and a relatively weak rate of job creation among construction firms during September.

Survey respondents widely commented on a headwind from political and economic uncertainty, alongside extended lead times for budget approvals among clients.

Input buying decreased for the first time in six months, largely in response to reduced workloads across the sector. Lower demand for materials helped to alleviate some strain on supply chains, as delivery times from vendors lengthened to the lowest extent since November 2016. Construction companies continued to face headwinds from rising input costs, with higher prices for imported materials helping to drive up inflationary pressures to a seven-month high.

“Fragile demand conditions appeared to weigh on construction firms’ expectations for growth in the next 12 months,” said Moore. “The latest survey indicated that business optimism eased to its second-lowest since April 2013. A number of firms cited concerns about UK business investment prospects, linked to uncertainty around the path to Brexit.”

Duncan Brock, Director of Customer Relationships at the Chartered Institute of Procurement & Supply, added, “Even housing, the stalwart of the construction sector stuttered with a dwindling performance, but civil engineering was the biggest victim falling to its weakest level for four and a half years.

“The contagion continued all along the supply chain as material shortages placed a strain on delivery times and increased commodity prices were affected by the weak pound. Despite a marginal increase in employment figures, this wasn’t enough to dispel the descending autumnal gloom where it is unclear where any major shift in momentum for the sector will come in the next few months.”

Did you like this? Share it:

Add Comment

Your email address will not be published. Required fields are marked *