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News » UK » January sees construction boom ease off » published 2 Feb 2016

January sees construction boom ease off

The construction industry has been slow out of the stalls in January and growth rates appear to be softening.

The monthly survey of industry purchasing managers saw the lowest score returned since June 2013, except for a brief pre-election dip last year.

In addition there was a 35% year-on-year fall in new contract awards recorded by the Builders’ Conference intelligence service in January.

At 55.0, down from 57.8 in December, the headline seasonally adjusted Markit/CIPS UK Construction Purchasing Managers’ Index (PMI) remained comfortably above the 50.0 no-change value, but signalled the slowest rate of expansion since April 2015. Aside from the pre-election slowdown recorded that month, the latest reading was the lowest since June 2013.

A number of survey respondents noted that softer new business growth had acted as a brake on output growth and staff hiring at the start of 2016. Higher levels of output were recorded across all three broad areas of construction activity monitored by the survey. Commercial work remained the best performing category in January, but the latest upturn was still the slowest since June 2015. At the same time, house building activity expanded at the second-weakest pace for just over two-and-a-half years. Civil engineering was again the weakest performing area of activity overall, despite rebounding slightly from December’s eight-month low.

Mirroring the trend for business activity, latest data signalled a slowdown in new order growth at the start of 2016. The latest increase in incoming new work was the slowest for four months. Survey respondents cited greater caution among clients and less favourable underlying demand conditions. That said, a number of construction companies also noted a sustained upturn in infrastructure-related contracts and new residential building work in January.

According to data gathered by the Builders’ Conference, there was a 35% year-on-year fall in the value of new construction contracts awarded in January 2016, reaching just £3,856m, compared to £5,894.4m in January 2015.

However, purchasing managers responding to the Markit survey remained upbeat overall about prospects for growth over the next 12 months, with around 46% expecting a rise in business activity and only 6% anticipating a reduction. However, the degree of positive sentiment eased for the third month running and was the lowest since December 2014. While there were widespread reports of strong order books and planned company expansions in 2016, some firms highlighted concerns that underlying demand conditions had started to soften.

Reduced optimism about the business outlook contributed to a moderation in job creation across the construction sector in January. The latest rise in employment numbers was the weakest since September 2013. Construction companies also signalled the slowest upturn in sub-contractor usage for six months. Input buying meanwhile expanded at a weaker rate in January, with the latest rise the least marked since April 2015.

A further lengthening of delivery times from vendors indicated that supply chain pressure persisted in January. However, lower fuel and energy costs helped to partially offset rising prices for construction materials, the survey showed. Reflecting this, latest data indicated that overall input cost inflation was only slightly stronger than December’s eight-month low.

Markit senior economist Tim Moore, author of the Markit/CIPS Construction PMI, said: “UK construction firms struggled for momentum at the start of this year, with heightened economic uncertainty acting as a brake on new orders and contributing to one of the weakest rises in output levels since the summer of 2013. Softer growth of house building activity and a more subdued increase in commercial construction were the main factors behind the slowdown.

“Business confidence appears to have subsided across the construction sector, following the multi-year highs seen in 2015. The latest survey indicated that construction companies are less upbeat about their prospects for growth than at any time since December 2014.

“Job creation was sustained in January, but at the weakest pace for almost two-and-a-half ears. Greater caution was also evident in terms of input buying at the start of 2016.

Taken together with the slowdown in new order growth, the latest survey suggests that construction companies are braced for a relatively subdued first quarter.”

David Noble, chief executive of the Chartered Institute of Procurement & Supply (CIPS), which sponsors the monthly survey, said: “The housing sub-sector continued to disappoint and though still above the no change point, was at its second weakest level of growth since June 2013. Supply chains were weighed down by the pressures of a shortage of bricks and blocks as delivery times became longer in an attempt to fulfil recent orders from last year.

 

 

MPU

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This article was published on 2 Feb 2016 (last updated on 4 Feb 2016).

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