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Fri September 25 2020

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PMI survey reveals construction growth but falling confidence

4 Jul 11 UK construction activity continued to rise in June, but at a slightly slower rate than in May.

The seasonally adjusted Markit/CIPS Construction Purchasing Managers’ Index (PMI) posted a score of 53.6 for June, where anything above 50 represents growth.

However, the latest reading fell slightly from 54.0 in May, with a slowdown in new business growth the primary contributor to the lower rise in activity.

Furthermore, employment decreased and at the fastest rate since January, while confidence weakened sharply in June from May’s 12-month high to the lowest since last December.

Of the three broad areas of construction activity monitored by the survey, both commercial and civil engineering recorded increases in output. Although growth of commercial construction slowed, itremained the strongest performing sub-sector, while expansion in civil engineering followed a contraction in May. Meanwhile, house building was reported to be lower during June, the second time in three months that activity in this sector has fallen.

New orders received by UK construction companies increased for a sixteenth successive month. However, the latest rise was the weakest since January. Anecdotal evidence suggested that a fall in the conversion of bids to contract wins had resulted in slower growth of new business.

Subcontractor usage declined sharply and rates charged by subcontractors fell for the first time since January.

Purchasing activity rose at a weaker rate in June, reflective of the lower increase in activity. Nonetheless, delivery times continued to lengthen as vendors reduced holdings of stock.

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Survey author Sarah Bingham said: “June data rounds off a further solid quarter of growth, albeit down on the first quarter. This contrasts with the surprising weakness seen in the official data for the first three months of the year.

“The contraction in residential construction provides further evidence to highlight the weakness of the household sector in recent months, with the sluggish property market linked to high unemployment, job insecurity and worries about the fragile economic recovery in general.

“More optimistically, commercial construction held up well, suggesting that companies continue to invest in new built assets, and civil engineering even showed a nice rebound from a lull seen in May.

“The worry is that the level of business confidence has fallen to a six-month low in the sector, which suggests that companies are expecting growth to weaken over the next 12 months. That is perhaps not altogether surprising given a marked easing in the rate of expansion of new business inflows in June.”

David Noble, chief executive of the Chartered Institute of Purchasing & Supply, said:

“A solid reduction in employment indicated that firms are meticulously managing their costs, and prospects for any future expansions in output growth look moderate at best with confidence weakening.”

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