UK construction sector moves back into reverse gear during September

Author: Ross Sturley CIMCIG

The latest IHS Markit/CIPS UK Construction PMI September data revealed a difficult month for the UK  construction sector, as a sustained drop in new work led  to  the  first  reduction  in  overall  business  activity since  August  2016.  Survey  respondents  attributed the  drop  in  workloads  to  fragile  confidence  and subdued  risk  appetite  among  clients,  especially  in the commercial building sector.                   

The   seasonally   adjusted IHS   Markit/CIPS   UK Construction Purchasing  Managers’  Index (PMI)
registered  48.1  in  September,  down  from 51.1 in August and below the crucial 50.0 no-change
threshold  for  the  first  time  in  13  months.  The  latest reading   signalled   the   fastest   decline   in   overall construction output since July 2016.

Lower   volumes   of   construction    work   reflected marked    falls    in    both    commercial    and civil engineering activity     during     September.     The reduction  in  civil  engineering  work  was  the  steepest for  almost  four-and-a-half  years,  which  some  firms linked  to  a  lack  of  new  infrastructure  projects  to replace completed contracts.

The    latest    decline    in work    on commercial development projects   was   the   second-sharpest
since February 2013 (exceeded only by the post-EU referendum  dip  seen  last  July).  Survey  respondents widely commented on a headwind from political and economic uncertainty, alongside extended lead times for budget approvals among clients.

House   building was   the   only   broad   area   of construction   activity   to   register   an   expansion   in September. However, growth momentum eased to a six-month low amid reports citing  worries about  less favourable market conditions ahead.   

New business volumes dropped for the third month running    in    September,    thereby    suggesting    a continued  shortage  of  work  to  replace  completed construction projects. Aside from the downturn seen around  the  EU  referendum  last  year,  the current period of decline is the longest recorded since early - 2013.  More  subdued  demand  led  to  another  fall  in sub-contractor usageand a relatively weak rate of job   creation among   construction   firms   during September.   

Input  buying decreased  for  the  first  time  in  six months,  largely  in  response  to  reduced  workloads across   the   sector.   Lower   demand   for   materials helped to alleviate some strain on supply chains, as delivery  times  from  vendors lengthened  to  the lowest  extent  since  November  2016.  Construction companies  continued  to  face  headwinds  from  rising input   costs,    with   higher   prices   for   imported materials helping to drive up inflationary pressures to a seven-month high.      

Fragile  demand  conditions  appeared  to  weigh  on construction firms’ expectations  for  growth
in  the next  12  months.  The  latest  survey  indicated  that business  optimism  eased  to  its  second-lowest  since April  2013.  A  number  of  firms  cited  concerns  about UK    business    investment    prospects,    linked    to uncertainty around the path to Brexit.