Weaker housing activity weighs on UK construction growth

March data revealed a slowdown in growth across the UK construction sector, led by a weaker rise in residential building activity. The latest survey also pointed to only a marginal increase in new work, which contributed to slower employment growth and a slight decline in input buying.

“UK construction firms experienced a growth slowdown in March, with the loss of momentum centred on housebuilding,” said Tim Moore, Senior Economist at IHS Markit and author of the Markit/CIPS Construction PMI. “A weaker trend for residential work has been reported throughout 2017 so far, which provides an indication that the cooling UK housing market has started to act as a drag on the construction sector.”

However, construction companies remain relatively upbeat about their near-term growth prospects, partly reflecting a stabilisation of client confidence categories monitored by the survey in March.

Subdued new business growth persisted in March, with the rate of expansion unchanged from the four-month low seen in February. Construction companies noted that squeezed client budgets had acted as a brake on new business growth. There were also reports citing planning delays and greater cost consciousness among clients.

At the same time, survey respondents noted that reduced Brexit-related anxiety and the resilient economic backdrop had a positive impact on new invitations to tender. This helped underpin an improvement in business confidence regarding the growth outlook. Almost half of the survey panel expect a rise in business activity during the year ahead, against only 9% that forecast a decline.

Construction companies recorded a solid increase in employment numbers in March, although the pace of job creation eased to a three-month low. Meanwhile, subcontractor usage dipped slightly since February, but construction firms continued to report a sharp drop in the availability of sub-contractors.

Input buying declined for only the second time since September 2016, which was mainly linked to subdued new business growth in March. Supplier performance nonetheless deteriorated at one of the fastest rates seen over the past two years, driven by low stocks among vendors.

Input cost inflation remained strong in March, linked to higher prices for imported materials and global commodity price rises. However, the overall rate of cost inflation eased further from the eight-and-half year peak seen in January.

“Where the housing sector acted as the main engine of growth over the last four years, this month it was slower and stuttering, while overall purchasing activity in the construction sector was disappointingly tame, shackled by a lack of new orders and rising costs,” said Duncan Brock, Director of Customer Relationships at the Chartered Institute of Procurement & Supply.

“This downbeat effect took a small bite out of any strong rises in employment levels, as the increase in staff hiring was at a three-month low,” added Brock. “But as the sector showed strong optimism for future business, concerns over the skilled labour availability are likely to persist in coming months.

“Pressure on suppliers remained intense, as they battled against lower stocks and made greater efforts to fight the pincer movement of a shortage in some materials and the continued force of higher global commodity prices.

“Now the trigger has been pulled to propel the UK out of the EU, the construction sector must keep an attentive eye on how the UK Government’s negotiations will play out and whether consumer and business caution returns to hamper further progress.”

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