Housebuilding soft patch puts brake on construction output

A soft patch for housebuilding continued in February, meaning that residential work remained on track for its weakest quarter since Q3 2016, according to the latest IHS Markit/CIPS Construction PMI.

February data pointed to a continuation of the subdued growth conditions reported across the UK construction sector at the beginning of 2018. Total business activity increased only marginally during the latest survey period, while new work decreased for the second month running.

Tim Moore, Associate Director at IHS Markit and author of the IHS Markit/CIPS Construction PMI, “The construction sector endured another difficult month during February, with fragile business confidence, entrenched political uncertainty and softer housing market conditions all factors keeping growth in the slow lane.

“Residential work appears on track to experience its weakest quarter since Q3 2016, suggesting that housebuilding is losing its status as the main engine of construction growth.”

Anecdotal evidence suggested that fragile business confidence and ongoing political uncertainty remained key factors holding back client demand. At the same time, strong input cost pressures were reported in February, with higher raw material prices, fuel bills and staff wages reported by survey respondents.

At 51.4 in February, the seasonally adjusted IHS Markit/CIPS UK Construction Purchasing Managers’ Index (PMI) edged up from January’s four-month low of 50.2. This signalled a marginal increase in construction output during February, with the index also weaker than seen on average in 2017 (52.3).

Weak business activity growth and lower new order volumes both weighed on input buying in February. Relatively subdued demand for construction materials helped to alleviate some of the pressure on supply chains, with the latest downturn in vendor performance the least marked since September 2016.

Input cost inflation remained strong in February, driven by higher prices paid for a range of raw materials. Survey respondents noted that increased fuel costs and greater staff wages had pushed up operating expenses.

“Cost pressures continued to creep up and bear down on purchasing activity as raw materials became even more expensive and in shorter supply, and vendor performance degraded again impacting on the completion of projects,” Duncan Brock, Director of Customer Relationships at the Chartered Institute of Procurement & Supply, said. “A talent shortage also gave staff the power to demand higher wages, adding to the overall cost burdens for business.”

However, the overall rate of input cost inflation was much softer than the five and-a-half year peak seen at the start of 2017. Construction companies indicated that business confidence moderated since January and was at one of the lowest levels seen in the past five years.

Some firms noted that resilient UK economic conditions had supported optimism. However, there were also reports that Brexit-related uncertainty continued to influence decision making and act as a drag on the demand outlook.

Brook concluded, “The sector was feeling as flat as a pancake in February with falls in new orders for the second month in a row and with just a marginal rise in overall activity, as ongoing political and economic uncertainty shouldered the blame.

“Housing bore the brunt of this disappointing performance, though there was a weak improvement this month. With the government’s intention to increase housing stocks, there will have to be a boost to the sector’s fortune for these two trajectories to align.”

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