September data
revealed a difficult month for the UK construction sector, as a sustained drop
in new work led to the first reduction in overall business activity since August 2016.
Survey respondents
attributed the drop in workloads to fragile confidence and subdued risk
appetite among clients, especially in the commercial building sector.
The seasonally
adjusted IHS Markit/CIPS UK Construction Purchasing Managers’ Index (PMI)
registered 48.1 in September, down from 51.1 in August and below the crucial
50.0 no-change threshold for the first time in 13 months.
The latest reading
signalled the fastest decline in overall construction output since July 2016.
Lower
volumes of construction work reflected marked falls in both commercial and
civil engineering activity during September. The reduction in civil engineering
work was the steepest for almost four-and-a-half years, which some firms linked to a lack of new infrastructure
projects to replace completed contracts.
The
latest decline in work on commercial development projects was the second-sharpest since February 2013 (exceeded only
by the post-EU referendum dip seen last July). Survey respondents widely
commented on a headwind from political and economic uncertainty, alongside
extended lead times for budget
approvals among clients.
House
building was the only broad
area of construction activity to register an expansion in September. However,
growth momentum eased to a six-month low amid reports citing worries about less
favourable market conditions ahead.
New
business volumes dropped for
the third month running in September, thereby suggesting a continued shortage
of work to replace completed construction
projects. Aside from the downturn seen around the EU referendum last year, the,current period of decline is the longest
recorded since early-2013.
More
subdued demand led to another fall in sub-contractor usage and a relatively
weak rate of job creation among
construction firms during September.
Input
buying decreased for the first
time in six months, largely in response to reduced workloads across the sector.
Lower demand for materials helped to alleviate some strain on supply chains, as
delivery times from vendors lengthened
to the lowest extent since November 2016. Construction companies continued to
face headwinds from rising input costs, with higher prices for imported
materials helping to drive up inflationary pressures to a seven-month high.
Fragile
demand conditions appeared to weigh on construction firms’ expectations for
growth in the next 12 months.
The latest survey indicated that business optimism eased to its second-lowest
since April 2013. A number of firms cited concerns about UK business investment
prospects, linked to uncertainty around the path to Brexit.
Tim Moore,
Associate Director at IHS Markit and author of the IHS Markit/CIPS Construction
PMI, said: "A shortfall of new work to replace completed projects has
started to weigh heavily on the UK construction sector.
"Aside from
the soft patch linked to spending delays around the EU referendum, construction
companies have now experienced their longest period of falling workloads since
early-2013.
“Fragile client
confidence and reduced tender opportunities meant that growth expectations across
the UK construction sector are also among the weakest for four-and-a-half
years. At the same time, cost pressures have intensified, driven by supply
bottlenecks and rising prices for imported materials.
“Commercial
development has been the worst performing category in recent months.
Construction firms attributed falling volumes of commercial work to subdued business
investment and reduced risk appetite among clients, linked to heightened economic
and political uncertainty.
“Civil
engineering work decreased at its
fastest pace since April 2013, which prompted concerns from survey respondents
about a near-term lack of new Infrastructure
projects.
“House
building slipped down a gear in
September, which highlighted
that fragile confidence has spread across all three key market segments. Some
firms suggested
that the loss of momentum for residential construction reflected worries about
the outlook for ultra-low mortgage rates and less upbeat demand expectations.”
