The recent soft patch for construction  continues as economic worries spread

The recent soft patch for construction continues as economic worries spread

May 2019

The recent soft patch for UK construction output continued during March.  Another fall in commercial work and civil engineering activity more than offset a modest upturn in residential building.

New business and employment numbers increased only slightly at the end of the first quarter, reflecting subdued underlying demand and delays to decision-making.

Adjusted for seasonal influences, the headline seasonally-adjusted IHS Markit/CIPS UK Construction Total Activity Index posted 49.7, up fractionally from 49.5 in February but still below the 50.0 no-change threshold.  The sustained decline in total construction activity represented the first back-to-back fall in output levels since August 2016.

Commercial construction was the worst performing area during the latest survey period, with business activity dropping to the greatest extent since March 2018, amid widespread reports of Brexit uncertainty, and concerns about the domestic economic outlook, leading to risk aversion.

Civil engineering activity also fell in March, although the rate of decline eased since February.  Residential building bucked the downward trend, but the upturn in housing activity was only modest.

March data revealed a marginal increase in new work received by UK construction companies, with the rate of  expansion remaining subdued in comparison to the long-run survey average.  The latest data also highlighted a modest rise in staffing levels at UK construction companies.  Input buying rebounded slightly in March, followed a decline during the previous survey period. Some firms commented  on stock building efforts as part of their Brexit preparations, which helped to boost purchasing activity.  Meanwhile, suppliers' delivery times lengthened markedly in March, which survey respondents attributed to low stocks and stretched capacity among vendors.  Average cost burdens increased at a sharp and accelerated  pace during March.  The rate of input price inflation was the fastest since November 2018.  Higher raw material costs were attributed to the weak Sterling exchange rate and, in some  cases, shortages of available items.

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