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Tue April 23 2019

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Construction growth stalls

4 Feb The monthly survey of construction industry purchasing managers suggests that there was barely any industry growth at all in the first month of 2019.

There was still some growth in January 2019, but nobbut just
There was still some growth in January 2019, but nobbut just

January data indicated a loss of momentum for the UK construction sector, with business activity growth easing to its weakest for ten months. New orders increased only marginally at the start of 2019, according to survey respondents, which contributed to the slowest expansion of employment numbers for two-and-a-half years. Brexit uncertainty continues to be cited as a cause slow progress getting planned projects onto site.

The headline seasonally adjusted IHS Markit/CIPS UK Construction Total Activity Index (previously known as the PMI or purchasing managers’ index) dropped to 50.6 in January, compared to 52.8 in December and 53.4 in November. Anything over 50.0 indicates growth and so the index has now shown some sort of growth every month since snow-hit March 2018, but it were nobbut just this time.

All three categories of construction output were down on December. Residential work was the strongest performing area, although the latest expansion was only modest and the slowest seen since March 2018. Civil engineering activity increased marginally, with the rate of growth much softer than December's 19-month high. Commercial work was the weakest performing area of construction output in January, showing a decline in work for the first time in 10 months.

New business growth eased to an eight-month low in January, with clients choosing to wait and see a bit longer yet. This prompted more cautious staff hiring policies among construction companies. The latest survey pointed to the slowest rise in employment numbers since July 2016.

On the other hand, the slower growth of input buying helped to reduce pressure on construction supply chains and input price inflation continued to moderate. Where purchasing costs increased, it was generally linked to rising prices for imported products and materials.

Construction firms still remain positive about the outlook for business activity in 2019. Around 41% of the survey panel anticipate a rise in output, while only 16% forecast a fall. Despite the scrapping of new nuclear projects, large-scale civil engineering projects such as HS2, Hinkley Point C and the Thames Tideway were cited as a key source of optimism.

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Tim Moore, economics associate director at IHS Markit, which compiles the survey, said: “UK construction growth shifted down a gear at the start of 2019, with weaker conditions signalled across all three main categories of activity. Commercial work declined for the first time in ten months as concerns about the domestic economic outlook continued to hold back activity. The latest survey also revealed a loss of momentum for house building and civil engineering, although these areas of the construction sector at least remained on a modest growth path.

“Staff recruitment slowed to a crawl in January, with construction firms reporting the softest rate of job creation since July 2016. Delays to client decision-making on new projects in response to Brexit uncertainty was cited as a key source of anxiety at the start of 2019. Difficulties converting opportunities to sales were reflected in a slowdown in total new business growth to its lowest since last May.

“Business expectations for the year ahead slipped to a three-month low and remained subdued in comparison to historic trends in January. Positive sentiment towards the outlook for civil engineering work remains a key factor helping to support business sentiment across the construction sector, according to survey respondents."

Duncan Brock, group director at the Chartered Institute of Procurement & Supply, said: “The sector suffered a sharp drop in output growth in January, and the softest rise in purchasing volumes since September 2017, as Brexit continues to hamper progress and dampen client confidence.

“Residential building, the stalwart of the sector leading the way in the last six months, lost its momentum with the weakest performance since March 2018. However, commercial building suffered the most of the three sub-sectors declining for the first time in just under a year. Larger orders were held back by clients and overall activity slowed.

“The biggest shock came in the form of job creation which has managed to suffer the slings and arrows of Brexit highs and lows with solid hiring since the referendum result. Employment rose at the slowest rate since July 2016 and with optimism also in short supply, the sector only needs a small nudge to tip it closer to recession."

MPU

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