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Tue September 29 2020

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July output continues steady growth

2 Aug 11 UK construction had its 17thsuccessive month of new business increases but employment in the sector decreased for a second successive month.

These are among the findings of Markit/CIPS Construction Purchasing Managers’ Index.

The Index posted a score of 53.5. Anything over 50 represents growth. July’s score was virtually unchanged from June’s 53.6.

Confidence improved slightly in July, but remained weak in the context of historical data.

Of the three broad areas of construction activity monitored by the survey, two – commercial and civil engineering – recorded growth. Civil engineering recorded the sharpest expansion, while the rate of increase in commercial activity fell slightly. Residential construction contracted for a second consecutive month, but at a marginal rate.

UK construction companies reported a 17th successive rise in new business received during July. An increase in new contract wins and opportunities to tender supported the expansion in new work intakes. The rate of growth was solid, but remained below the long-run trend.

Employment in UK construction decreased in July, despite sustained growth of new business and output. Panellists recording a reduction predominately attributed this to natural wastage, with positions not being refilled. There were also indications of redundancies and falling activity requirements at some companies. Usage of subcontractors decreased again, but their rates rose for the fifth time in the last six months.

July data signalled a solid rise in purchasing activity at UK construction companies, reflective of growth in new business. Suppliers’ delivery times were reported to have lengthened again, as increased input buying put pressure on operating capacity at vendors.

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Input costs faced by construction companies in the UK rose for an 18thsuccessive month in July. The rate of input price inflation was slightly faster than in June, and remained strong in the context of historical data. Higher raw material prices were cited as the main driver of costs, with prices for fuel and copper particularly noted to have increased.

UK construction companies expressed optimism that activity would rise over the next year. Ongoing improvements in economic conditions and increased marketing initiatives are expected to support output growth. However, the degree of confidence remained weak in the context of historical data.

Markit economist Sarah Bingham, author of the UK Construction PMI, said: “July PMI data signalled that the UK construction sector entered the second half of the year in much the same way as the first half was concluded. Rates of growth for both new orders and activity were solid, but remained below long-run trends. Furthermore, employment fell for a second month running.

Moreover, the subdued level of confidence regarding future business expectations reflects the challenging outlook for the UK economy, and therefore the construction sector. Subsequently, concerns over the stability of growth going forward, for private as well as public sector firms, are likely to hinder spending on construction projects and, ultimately, the expansion of the sector.”

Chartered Institute of Purchasing & Supply chief executive David Noblesaid: “It’s a case of ‘as you were’ for the UK construction sector this month with little change in the rate of activity growth since June. Whilst the sector is battling against poor economic sentiment, high inflation and continued worries in the Eurozone, the sustained growth, albeit at a historically mild pace, has to be seen as a positive, especially compared to the fallback in the manufacturing sector.

“A continued rise in new orders suggests that activity should be supported in the near-term, but confidence regarding potential activity growth for the next year remains relatively subdued. Subsequently, firms are purchasing only to meet current requirements and remain cautious about replacing leaving staff, as the general mood remains uncertain.”

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