UK construction sector experiences a soft end to 2018, yet remains optimistic

January 2019

UK construction experienced a soft end to 2018 as business growth eased to a three-month low and new orders grew at a subdued pace, although civil engineering activity rose at its fastest rate since May 2017.  Despite this, business optimism  picked up in December and was at the highest level since last April on hopes of a boost to growth from work on big-ticket transport and energy infrastructure projects in 2019.

At 52.8 in December, down from 53.4 in November, the headline seasonally adjusted IHS Markit/CIPS UK Construction Total Activity Index posted above the crucial 50.0 no-change value for the ninth consecutive month.  However, the rate of expansion was the slowest seen since September.

The slowdown in construction growth largely reflected softer rises in commercial and housing activity during December.

Commercial building was the worst performing category, with activity expanding at the slowest rate since last May.  Work on civil engineering projects was the strongest performing area of construction activity at the end of 2018.

Total new business volumes picked up for the seventh successive month, but the rate of expansion has eased since November and remains modest.  A number of construction companies noted that heightened political uncertainty had encouraged delays in spending decisions among clients.

A solid rise in employment numbers was recorded across the construction sector in December.  However, the rate of job creation eased from November’s near three-year peak.  Sub-contractor usage picked up, with the rate of expansion the strongest since December 2015.

There were some positive signs for construction supply chains, with delivery times for materials lengthening to the least marked extent for over two years.  Input cost inflation was the second-lowest since July 2016, despite reports that the weak pound had pushed up prices for imported items.

Tim Moore, Economics Associate Director at IHS Markit, says: “Subdued domestic economic conditions, and an intense headwind from political uncertainty, resulted in the weakest upturn in commercial work for seven months.  Strong demand among first-time buyers meant that house building was the fastest growing category of construction output during 2018. However, construction companies indicated a renewed loss of momentum in December.”

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