UK construction
sector output declined for the third month running in July, reflecting lower
volumes of work across all three broad categories of activity.
The latest survey
also revealed a sharp drop in new order intakes, which survey respondents
mainly attributed to subdued economic conditions and domestic political
uncertainty.
Weaker demand
contributed to a slide in business optimism towards the year-ahead outlook for
construction activity, with the degree of confidence the lowest since November
2012. At 45.3 in July, the headline seasonally adjusted IHS Markit/CIPS UK
Construction Total Activity Index posted below the 50.0 no-change value for the
fifth time in the past six months.
The latest reading
was up from June's ten-year low of 43.1 but still signalled a marked downturn
in total construction activity. Commercial construction was the worst
performing category in July, followed closely by civil engineering activity.
Anecdotal evidence
suggested that risk aversion among clients in response to Brexit uncertainty
continued to hold back work on commercial projects. At the same time, some
survey respondents noted that delays to contract awards for infrastructure work
had acted as a headwind to civil engineering activity.
House building fell
for the second month in a row during July, but the rate of decline was only
modest and eased from the three-year record seen in June. Reports from
construction companies suggested that sluggish housing market conditions had a
negative influence on residential work during the latest survey period.
July data pointed to
a downturn in total order books across the construction sector for the fourth
successive month, which is the longest continuous period of decline since 2016.
Lower volumes of new business were often linked to a lack of tender opportunities
amid weaker domestic economic conditions and ongoing political uncertainty.
Employment numbers
were cut back in response to deteriorating order books, although the rate of
job shedding was only modest and largely reflected the non-replacement of
voluntary leavers. Sub-contractor usage meanwhile decreased for the sixth
consecutive month.
Demand for
construction products and materials continued to soften, as signalled by a
solid drop in purchasing activity during July. This helped to alleviate some of
the pressure on supplier capacity, with lead times lengthening to the smallest
extent since September 2016. A robust rate of input cost inflation persisted in
July, partly reflecting rising prices for imported items and those in short
supply (particularly insulation and plasterboard).
Construction
companies meanwhile reported a sharp drop in their confidence regarding the
year-ahead outlook for business activity. The latest reading was the lowest
since November 2012. Survey respondents often cited Brexit uncertainty, the
prospect of a General Election and delays to infrastructure work.
Tim Moore,
Economics Associate Director at IHS Markit, which compiles the survey, said:
“UK construction output remains on a downward trajectory and another sharp drop
in new orders has reduced the likelihood of a turnaround in the coming months.
"Total business
activity declined at a softer pace than the ten-year record seen in June, but
this should not detract attention from the challenges ahead for the
construction sector. Customer demand has been squeezed on all sides in recent
months, which has pushed down business expectations to the lowest since the
second half of 2012.
"July data
revealed declines in house building, commercial work and civil engineering,
with all three areas suffering to some degree from domestic political
uncertainty and delayed decision-making.
"Construction
companies have started to respond to lower workloads by cutting back on input
buying, staffing numbers and sub-contractor usage. If the current speed of
construction sector retrenchment is sustained, it will soon ripple through the
supply chain and spillovers to other parts of the UK economy will quickly
become apparent."
Duncan Brock, Group
Director at the Chartered Institute of Procurement & Supply, said : “The
sector felt the pressure of challenging economic conditions and the impact of
another disastrous drop in demand growth, as purchasing activity petered out and
Brexit nibbled away at confidence and decision-making. Though the sector’s
activity improved marginally on last month’s biggest fall in a decade, this
third month of contraction in a row makes for gloomy reading.
“Moving into the
second half of the year it will take the sector some time to dig its way out of
this deep hole. As the autumn and the potential negative impacts of a no-deal
exit from the EU threaten, any significant recovery is unlikely to be on the horizon
until 2020. Construction optimism is at its lowest since November 2012, so
there’s no time to lose in injecting some stability and certainty into the
economy and Brexit plans before a recovery of months turns into years.”
