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News » UK » Construction activity continues to fall » published 3 May 2013

Construction activity continues to fall

UK construction companies reported a continued downturn in business activity in April, as highlighted by the Markit/CIPS UK Construction Purchasing Managers’ Index (PMI).

There was a slight increase in housing activity but drops in commercial activity and civil engineering.

The seasonally adjusted index, which measures overall output in the sector, signalled only a marginal decline in April and posted 49.4, from 47.2 in March. The rate of contraction was the slowest in the current six-month period of falling activity.

Lower levels of construction output reflected declines in two of the three broad areas of activity monitored by the survey in April, with residential construction output the exception. Commercial activity dropped for the third month running, while work of civil engineering projects decreased markedly. The rise in housing activity was only marginal, but nonetheless the strongest since April 2012.

The current period of declining new business is the longest since that recorded in 2008/09.

Employment numbers were broadly stable in the UK construction sector at the start of the second quarter. Anecdotal evidence from survey respondents suggested that subdued demand patterns had led to cautious job hiring trends, but a degree of optimism about the year-ahead outlook had helped stabilise overall staffing levels. More than twice as many survey respondents anticipate a rise in their output over the next twelve months as those that forecast a reduction.

Meanwhile, input buying dropped again in April, reflecting reduced output and new business during the latest survey period. The decrease in purchasing activity was only marginal and the slowest since September 2012.

Tim Moore, senior economist at Markit, said: “UK construction sector output was closer to stabilisation than at any time since October 2012, according to the latest survey data. A slower decrease in output reflected an element of catch-up after some severe weather delays earlier in the year.

“Total construction output was mainly supported by higher levels of residential building activity in April. Some firms cited a boost to output volumes from contract wins on new house building schemes. Civil engineering remained the weakest construction sub-category, with public sector order inflows scarce outside of big-ticket infrastructure projects.

“The overall survey findings are an early indication that construction will act as less of a drag on UK GDP over the second quarter of 2013. April’s data also highlights a cautious degree of positive sentiment about the year-ahead outlook. However, total new work dropped for the eleventh month running during April, which further reduces the likelihood of improving in employment patterns across the sector.”

David Noble, chief executive officer at the Chartered Institute of Purchasing & Supply, said: "The UK’s construction sector showed signs of stabilisation in April, as it recorded its slowest decline in six months. This is a reasonable signal that things are a bit better in the industry but that said, construction is still contracting and witnessing marginal declines in new orders.

“Government efforts to boost the economy may be filtering through as housing activity has risen in every month since February, and experienced its strongest performance for a year in April. Compared to the end of last year, business confidence is picking up, indicating a robust degree of optimism for the year to come. The moderation in cost pressures linked to lower commodity prices is acknowledged to have brought some relief to the industry.

“Recent GDP figures reinforce the view that construction is still a weak spot for the UK economy. Commercial and civil engineering activities remained the laggards of the sector in April, burdened by longer supplier lead-times and a workforce down to bare bones, making it hard to see any major shifts in momentum in the near future.”

Institution of Civil Engineers director general Nick Baveystock said: “Despite the slight improvement in the rate of decline, these figures remain acutely concerning. They show that construction, and civil engineering in particular, needs all of the government help it can get, if we are not to slip further behind in international market competitiveness. The government has to recognise the severity of the crisis affecting the industry if it is not to slip further, especially as the next spending review approaches.”

MPU

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This article was published on 3 May 2013 (last updated on 3 May 2013).

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