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Referendum blamed as construction growth dries up

2 Jun 16 The Construction Purchasing Managers’ Index (PMI) dipped again last month as the industry appears to be stagnating amid EU referendum uncertainty.

The latest monthly survey of purchasing managers shows growth in construction output at its weakest for almost three years and incoming new work declining for the first time since April 2013.

Survey respondents noted a general slowdown in market conditions and delays to client decision making ahead of the EU referendum.

However, despite this, there are signs that construction companies remain relatively upbeat about the growth outlook, with more than half of the survey panel (51%) expecting a rise in output over the next 12 months and only one-in-seven (14%) anticipating a fall. As a result, job creation picked up in May and reached a four-month high.

The seasonally adjusted Markit/CIPS UK Construction PMI posted 51.2 in May, down from 52.0 in April and only slightly above the critical 50.0 no-change mark.

All three broad areas of construction activity struggled during May. Residential building work increased at one of the weakest rates seen since early 2013, while growth of commercial activity was the slowest for nearly three years. Civil engineering stagnated in May, which made it the worst performing sub-category of activity for the second month running.

May data signalled an outright reduction in new order volumes for the first time since April 2013. Anecdotal evidence pointed to a general lack of client confidence, driven by heightened uncertainty about the economic outlook. Moreover, a number of firms noted reluctance among clients to place orders and commence contracts until after the EU referendum.

According to an extra question added to the survey this month, more than a third (35.4%) of respondents have seen a detrimental impact on their business from uncertainty regarding the forthcoming 23rd June referendum. On the other hand 54.5% said it had had no significant effect.

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Tim Moore, senior economist at Markit and author of the surey, said: “Construction companies are facing a challenging second quarter of 2016, with growth headwinds apparent across all three key areas of activity. May data signalled the worst month for commercial building since June 2013, while residential work and civil engineering activity both saw a renewed loss of momentum.

Survey respondents noted that the forthcoming EU referendum has disrupted new order flows and the timing of client decision making in particular.

Heightened uncertainty and subdued general economic conditions in turn contributed to the first outright fall in new work received by construction firms for just over three years.

“The main positive aspect was a pick-up in staff hiring to its fastest since the beginning of the year.

Positive employment trends not only contrasted with falling new order volumes in May, but the gap between these indices was the largest since the survey began in 1997.

“An optimistic interpretation is that construction firms are looking through the second quarter weakness and feel that workloads will recover momentum. However, should this fail to materialise later in 2016, then job creation is likely to come under pressure given its elevated trend relative to current demand patterns.”

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