Slowdown in housing construction softens

UK construction companies indicated a sustained reduction in business activity during August, but the pace of decline was only marginal and much softer than the seven-year record seen during July. Sub-sector data pointed to much slower reductions in housing activity and commercial building than those recorded in July.

New order volumes also moved closer to stabilisation, with the latest reduction the least marked since May. This contributed to a renewed rise in staffing levels across the construction sector and a rebound in business expectations for the next 12 months.

However, latest data indicated a further steep acceleration in input cost inflation. Purchasing prices rose at the fastest pace for just over five years amid reports that exchange rate depreciation had acted as a catalyst for increased charges among suppliers of construction materials.

“Despite another month of reduced output, the latest figures can be viewed as welcome news overall after a challenging summer for the construction sector,” Tim Moore, Senior Economist at Markit and author of the Markit/CIPS Construction, said. “The move towards stabilisation chimes with the more upbeat UK manufacturing PMI data for August, and provides hope that the near-term fallout from Brexit uncertainty will prove less severe than feared.”

Reports from survey respondents suggested that Brexit uncertainty continued to act as a brake on the construction sector during August, especially in terms of house building and commercial work. However, a number of firms noted that sales volumes had been more resilient than expected. Some panel members also commented on signs of a rebound in client confidence from the lows seen earlier this summer. Reflecting this, latest data highlighted that incoming new work decreased at the slowest pace since May.

“Despite another month of reduced output, the latest figures can be viewed as welcome news overall after a challenging summer for the construction sector,” said Moore. “The move towards stabilisation chimes with the more upbeat UK manufacturing PMI data for August, and provides hope that the near-term fallout from Brexit uncertainty will prove less severe than feared.”

Looking ahead, construction firms pointed to a rebound in business confidence from July’s 39- month low. Although the degree of positive sentiment was the highest since May, it remained close to the weakest recorded over the past three years.

“After the shock of last month’s seven-year low in the overall index, the picture now is more about stabilisation than searing growth, as the sector remained in contraction,” said said David Noble, Group Chief Executive Officer at the Chartered Institute of Procurement & Supply. “The housing sector continued its downward slide, but the drop in activity was much softer in August.”