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News » UK » Commercial building slowdown drags construction to 11-month low » published 2 Aug 2017

Commercial building slowdown drags construction to 11-month low

July 2017 proved to be the UK construction industry’s slowest month since august 2012, according to the latest monthly survey of industry purchasing managers.

UK construction companies recorded another growth slowdown in July, reflecting lower volumes of commercial building and a softer expansion of housing activity.

Adjusted for seasonal influences, the IHS Markit/CIPS UK Construction Purchasing Managers’ Index (PMI) dropped from 54.8 in June to 51.9 in July, to signal the weakest construction performance since August 2016. The latest reading suggests only moderate growth in business activity.

The survey also revealed a reduction in new business volumes for the first time since August 2016.

The purchasing managers’ survey confirmed data from The Builders Conference, which also reports a decline in new orders feeding into the industry. [See separate report here.]

At the same time, intense supply chain pressures continued in July and prices for construction materials increased at one of the sharpest rates since the first half of 2011.

Lower levels of commercial construction were a key factor holding back overall business activity growth in July, according to the Markit survey. Although only modest, the reduction in commercial activity was the fastest for 12 months. A number of survey respondents cited delays in decision making by clients, linked to worries about the economic outlook and heightened political uncertainty.

Residential building remains the strongest performing sector, although the latest rise was the slowest for three months. The only upturn in output growth was in the civil engineering sector.

Construction firms commented on greater reluctance to commit to new projects among clients in July. Weaker demand led to an overall reduction in new business volumes for the first time since the post-referendum rebound began in September 2016.

Deteriorating order books resulted in more cautious staff recruitment policies, as highlighted by a moderation in employment growth to its slowest for 11 months. Sub-contractor usage also decreased during the latest survey period.

July data suggested that UK construction companies responded to lower sales by tightening up purchasing activity at their business units. The latest increase in input buying was only marginal and the weakest since March. Delivery times for construction materials continued to lengthen, which survey respondents linked to low stocks and stretched capacity among suppliers. Meanwhile, input cost inflation remained elevated and close to the peaks seen at the start of 2017, which was partly linked to prices for imported items.

Tim Moore, associate director at IHS Markit and author of the IHS Markit/CIPS Construction PMI, said: “July data reveals a growth slowdown in the UK construction sector, mainly driven by lower volumes of commercial development and a loss of momentum for house building. Weaker contributions from the cyclically sensitive areas of construction activity more than offset resilience in the civil engineering sector.

“Worries about the economic outlook and heightened political uncertainty were key factors contributing to subdued demand. Construction firms reported that clients were more reluctant to spend and had opted to take longer in committing to new projects.

“There was a knock-on impact for job creation and input buying following the largest downturn in order books since August 2016. However, supply chain pressures remained intense, reflecting low stocks among vendors, and materials prices continued to rise at one of the fastest rates seen for six years.

“The combination of weaker order books and sharply rising construction costs gives concern that an extended soft patch for the construction sector may be on the horizon.”

Duncan Brock, director of customer relationships at the Chartered Institute of Procurement & Supply, said: “The number of new orders dropped significantly this month and at the fastest rate since August 2016, as commitment-averse clients contributed to the sector’s weak trajectory.

“Commercial building activity slowed for the first time in five months and was the main drag on the Index. Housing, the shining light of the sector eased marginally, but produced the slowest growth since April, as parallels with the darker days of Brexit, worries about the UK economy and post-election uncertainty can be seen across the construction sector.

“Continuing price pressures from the weak pound lingered, driving cost inflation near to six-year peak, stifling purchasing activity and jobs growth. All in all, a challenging start to Q3 and there are possible roadblocks ahead for the sector in the rest of 2017, with longer lead times and suppliers struggling with stock levels, which adds insult to injury.”

 

 

 

MPU

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This article was published on 2 Aug 2017 (last updated on 2 Aug 2017).

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