October data pointed
to a sustained decline in UK construction output, with overall volumes of work
falling for the sixth consecutive month.
The latest survey
also revealed a sharp drop in new work, although the rate of contraction was
the slowest for three months.
Meanwhile,
construction companies continued to reduce their workforce numbers in October,
which was linked to weak order books and concerns about their near-term
business outlook.
At 44.2 in October,
the headline seasonally adjusted IHS Markit/CIPS UK Construction Total Activity
Index registered below the crucial 50.0 no-change threshold. The latest reading
was up from 43.3 during the previous month, but still close to the ten-year low
seen in June (43.1). Construction companies noted that client demand remained
subdued in response to domestic political uncertainty and the economic
backdrop.
In some cases,
survey respondents noted that unusually wet weather in October had acted as an
additional headwind to construction output. Lower volumes of work were recorded
across all three broad categories of activity.
Civil engineering
was the worst-performing area, with business activity falling at the sharpest
pace since October 2009. House building also decreased at a faster rate in
October. Latest data pointed to the greatest drop in residential work for over
three years.
At the same time,
commercial construction fell for the tenth month running, but at the slowest
rate since May. New orders dropped for the seventh month in a row during
October, but the rate of decline was the least marked since July. Construction
companies noted that clients continued to defer decision-making on new projects
in response to political uncertainty and concerns about the economic outlook.
Survey respondents
also suggested that intense competition for new work had resulted in more
widespread price discounting to secure contract awards. Softer demand
conditions and a lack of new work to replace completed projects resulted in
another fall in staffing levels across the construction sector. Employment
numbers have declined in each month since April, which survey respondents
mainly attributed to the non-replacement of voluntary leavers. Input buying
dropped again in October, but weaker demand for construction products and
materials did not prevent a further lengthening of suppliers' delivery times.
The latest downturn
in vendor performance was the sharpest since June, with construction firms
commenting on stock shortages among suppliers (especially plasterboard and
insulation materials). However, input cost inflation was the lowest for just
over three-and-a-half years.
Meanwhile, business
optimism towards the year-ahead outlook for construction work remained among
the weakest seen since 2012. Some construction firms noted that contract awards
related to large-scale civil engineering projects had the potential to boost workloads
in the next 12 months, although political uncertainty continued to cloud the
outlook.
Tim Moore,
Economics Associate Director at IHS Markit, which compiles the survey: “UK
construction companies experienced a downturn in business performance during
October as political uncertainty and subdued economic conditions again combined
to hold back sales. New orders have fallen in each month since April, which is
the most prolonged period of decline recorded for more than six years.
"Civil
engineering was the worst-performing area of activity in October, with business
activity dropping at the fastest pace in ten years. Construction companies also
voiced concerns about the uncertain outlook for large-scale infrastructure
projects upon which growth is expected to rest in the coming years.
"House building
has also lost momentum this autumn amid a broader slowdown in market
conditions, with the latest survey data signalling the sharpest drop in
residential work since June 2016.
"There are
clear signs that construction firms are positioning for an extended soft patch
for project starts, as highlighted by a further decline in purchasing volumes
and another month of cuts to workforce numbers through the non-replacement of
voluntary leavers."
Duncan Brock, Group
Director at the Chartered Institute of Procurement & Supply, said in spite
of a small improvement in the headline index as a resolution to the political
impasse seemed close, it appears that strength in the sector is seeping away.
"Jobs hiring
suffered as businesses unsure of the Government’s next steps held back on their
development plans, which were weakened further by stronger competition for
fewer opportunities," he continued.
"Future
optimism remained at 2012 levels as the deep-seated Brexit gloom dampened down
expectations.
"To say these
figures are disappointing is a big understatement. Given that the next
political hurdle is December’s General Election, all eyes will be on the new
administration and clear direction, because at the moment there is little
insight into what could possibly pull the sector out of its ditch."
