The recent soft patch for UK construction output continued during March, as builders plead with the government to break the deadlock and end political uncertainty.
However, the good news for housebuilders is that residential building saw an upturn, albeit not enough of one to offset the fall in commercial work and civil engineering.
New business and employment numbers increased only slightly at the end of the first quarter, reflecting subdued underlying demand and delays to decision-making among clients.
Adjusted for seasonal influences, the headline seasonally adjusted IHS Markit/CIPS UK Construction Total Activity Index posted 49.7, up fractionally from 49.5 in February but still below the 50.0 no-change threshold. The sustained decline in total construction activity represented the first back-to-back fall in output levels since August 2016, although the rate of decline remained only marginal in March.
There were widespread reports that Brexit uncertainty and concerns about the domestic economic outlook had led to risk aversion among clients. Residential building bucked the downward trend seen across the wider construction sector in March. The latest upturn in housing activity was only modest, but still the strongest seen so far in 2019.
Joe Hayes, Economist at IHS Markit, said: “Fears that the recent weakness of the UK construction sector may not be just a blip, but a sustained soft patch, were further fuelled by latest data. Amid subdued inflows of new work, a first back-to-back decline in output since August 2016 was recorded. Brexit-related uncertainty continued to generate indecisiveness, ultimately hitting order book volumes.”
March data revealed a marginal increase in new work received by UK construction companies, with the rate of expansion remaining subdued in comparison to the long-run survey average. Survey respondents commented on intense competition for new work and a reluctance among clients to commit to major spending decisions in March.
Mirroring the trend for new orders, latest data also highlighted only a modest rise in staffing levels at UK construction companies. Input buying rebounded slightly in March, followed a decline during the previous survey period. Some firms commented on stock building efforts as part of their Brexit preparations, which helped to boost purchasing activity.
Meanwhile, suppliers’ delivery times lengthened markedly in March, which survey respondents attributed to low stocks and stretched capacity among vendors. Average cost burdens increased at a sharp and accelerated pace during March. The rate of input price inflation was the fastest since November 2018.
Duncan Brock, Group Director at the Chartered Institute of Procurement & Supply, said: “The fault of this continuing inertia was placed squarely at the feet of Brexit. Not a small rise in job creation, optimism and new orders, nor resilient house building, were enough to buck the underlying downward trend in a sector suffering from client hesitation and consumer gloom.
“There was also intense competition from other sectors, with the stockpiling of supplies increasing delivery times again and creating raw material shortages, all adding to the pressures. Given the lack of warehousing space in the UK and the difficulties of storing bulky items, it is evident the sector has pressed the panic button in its attempt to keep projects moving during the political impasse.
Higher raw material costs were attributed to the weak sterling exchange rate and, in some cases, shortages of available items among regular suppliers. Meanwhile, business optimism edged up from the four-month low seen during February. However, the degree of positivity remained much weaker than the long-term survey average. A number of construction companies noted that economic and political uncertainty had weighed on business expectations for the next 12 months.
Sarah McMonagle, Director of Communications at the FMB, said: “The construction industry is being seriously affected by Brexit uncertainty as evidenced by two very worrying sets of results for construction output in the first quarter of 2019. Businesses have been waiting for politicians to come to some resolution for far too long now, and it’s time that this deadlock was broken.
“It’s not surprising employers are finding it hard to plan for the future, when we don’t even know when, or indeed if, we’re leaving the EU. Today’s results are a reminder of just how vulnerable the construction industry is to political turmoil as confidence among consumers and contractors continues to wobble.”
