August survey data indicated that the UK construction sector continued to experience a slowdown this summer, according to the latest IHS Markit/CIPS UK Construction PMI. Residential building was the only area to buck the overall trend in August, with housing activity rising at a robust and accelerated pace since the previous month.
Reduced levels of commercial work were a key source of weakness, which offset robust growth in residential building. There were also signs of a sustained soft patch ahead, with new business volumes falling for the second month running. Survey respondents linked subdued demand to reduced business investment and heightened economic uncertainty.
As a result, construction firms exerted greater caution in terms of their staff hiring, with employment numbers rising at the slowest pace since July 2016. At 51.1 in August, the seasonally adjusted IHS Markit/CIPS UK Construction Purchasing Managers’ Index® (PMI®) remained above the 50.0 no-change threshold for the twelfth month running. However, the latest reading was down from 51.9 in July and pointed to the weakest overall UK construction performance since August 2016.
Mirroring the subdued trends for business activity and incoming new work, latest data revealed a slowdown in job creation to its weakest since July 2016.
“The sector hit a roadblock this month as purchasing activity slowed for the third month and new business wins were hard to come by,” said Duncan Brock, Director of Customer Relationships at the Chartered Institute of Procurement & Supply. “But any further drag on the construction sector overall was halted by the continuing strong performance by housebuilders, defying expectations with a good month.”
Construction firms also recorded a decline in sub-contractor usage, which continued the downward trend seen since March. Supply chain pressures persisted in August, despite stagnation in input buying. Longer delivery times were linked to ongoing stock shortages among vendors.
On a more positive note, cost pressures were the weakest since September 2016. Survey respondents noted that exchange rate depreciation continued to drive up prices for construction materials, but some commented on successful negotiations with suppliers against a backdrop of softer market conditions.
“The sector was also offered some respite from the ongoing march of rising prices as input price inflation weakened,” said Brock. “This good fortune in prices is unlikely to continue as suppliers scrabble to match the demand for an increasing number of materials in short supply and delivery times lengthened. Price rises will become inevitable if builders have to compete to get what they need.”
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