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Growth momentum slows in June

4 Jul 17 Latest monthly survey of construction industry purchasing managers shows weaker growth momentum across the industry in June.

June's rise in house-building was the second fastest since December 2015
June's rise in house-building was the second fastest since December 2015

Construction activity, new work and employment all increased in June, but at slower rates than in May. Political and economic uncertainties are being blamed for the softening in market conditions.

Survey respondents commented on signs of renewed risk aversion among clients, reflecting concerns about the economic outlook and heightened political uncertainty. The latest survey also indicated that construction companies were the least optimistic about their near-term growth prospects since December 2016.

At 54.8 in June, down from 56.0 in May, the seasonally adjusted IHS Markit/CIPS UK Construction Purchasing Managers’ Index (PMI) registered above the 50.0 no-change mark for the 10th month running. Although the PMI score indicates a solid upturn in overall business activity, the rate of expansion eased from May’s 17-month peak.

Softer growth momentum was recorded across all three broad categories of construction activity.

Residential building continued to outperform commercial work and civil engineering in June. Moreover, the latest monthly rise in house-building activity was still the second fastest since December 2015.

Reports from survey respondents suggested that a lack of new work to replace completed projects had weighed on construction growth in June. Latest data indicated that new order growth eased to its weakest since March. A number of firms cited delays in decision making among clients, partly linked to heightened economic uncertainty. The index measuring construction firms’ expectations for growth over the next 12 months was the lowest so far in 2017.

Meanwhile, demand for construction materials continued to rise at a solid pace in June, with the rate of expansion holding close to May’s 16-month peak. A sustained upturn in input buying placed pressure on stocks held by vendors and resulted in longer delivery times for construction materials. The latest deterioration in supplier performance was the second-sharpest since March 2015.

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UK construction companies reported another steep increase in their average cost burdens in June. The overall rate of inflation rebounded since May and was the strongest for three months. Survey respondents mainly commented on the weaker sterling exchange rate feeding through from manufacturers. Some firms also noted that a combination of resilient demand for construction materials and stretched supply had underpinned the latest round of price rises by vendors.

Tim Moore, senior economist at IHS Markit and author of the Markit/CIPS Construction PMI, said: “The construction sector experienced a growth slowdown in June, largely reflecting weaker rises in commercial building and civil engineering activity. Residential construction work continued to increase at one of the fastest rates since the end of 2015.

Survey respondents commented on renewed caution among clients, in response to heightened political and economic uncertainty. Fragile business sentiment led to delayed decision-making on large projects and greater concern about the outlook for workloads during the next 12 months. While construction firms remain upbeat overall about their near-term growth prospects, the degree of confidence fell to its lowest so far this year.

“Despite a softer rise in construction output, the latest survey revealed that supply chain pressures were among the most intense since early-2015. June data also pointed to strong input price inflation, driven by resilient demand and upward pressure on costs imported construction materials.”

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