Construction demand holds up

October 2018

UK construction companies indicated a sustained increase in business activity during September, but the rate of expansion slowed for the second month running. At 52.1 in September, down from 52.9 in August, the seasonally adjusted IHS Markit/CIPS UK Construction Purchasing Managers’ Index signalled the weakest upturn in output for six months.

Civil engineering was the worst performing sub-category of construction work, with activity declining at a slightly quicker rate in September.  House building and commercial construction continued to increase at a solid pace, although the survey indicated weaker growth than in August.  A number of firms suggested that subdued economic conditions were still holding back business activity growth.

The latest data pointed to a faster rise in new business volumes.  The rate of new order growth picked up to its strongest since December 2016, which firms attributed to resilient demand and an upturn in new invitations to tender.

A rise in staffing numbers was reported in September, helped by another improvement in new order books.  The increase in employment was the fastest since December 2015.  Sub-contractor usage also increased at the fastest pace for over two-and-a-half years.  As well as a larger than usual intake of trainees and apprentices in September, there were also reports that tight labour market conditions had led to a strategic focus on long-term hiring policies.

Delivery times for construction products and materials continued to lengthen in September.  Intense supply chain pressures were attributed to stock shortages at vendors and stretched transportation capacity.  Rising demand contributed to a sharp increase in average cost burdens during September.

September data indicated a further decline in optimism about the year ahead business outlook.  The degree of positive sentiment reported by survey respondents was the second-lowest since February 2013.  Construction companies noted that political uncertainty and investor concerns about Brexit had dampened confidence in September.

The Report’s author, Tim Moore, says: “UK construction firms experienced softer output growth during September, with house building, commercial and civil engineering all losing momentum.  There were mixed signals in terms of the near-term outlook.  New order books strengthened to the greatest extent since December 2016, which indicates that construction workloads remain on an upward trajectory.  However, latest data showed that overall confidence about the year-ahead business outlook was among the lowest seen since the start of 2013, as political uncertainty acted a key drag on decision-making.”

Duncan Brock, Group Director at the Chartered Institute of Procurement & Supply, said: “The Brexit blot on the landscape was still in evidence as housing activity slowed to a pre-April growth rate and clients hesitated to place orders. This tale of feast and famine offers little in the way of reassurance and is more about holding on to stable growth than a sprint to the finish. The weakest overall activity in six months shows that caution and Brexit concern remain roadblocks to strong growth.”

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