Dark clouds gather as construction slows again
June 06, 2019 – UK construction activity dropped back again in May 2019, with the sharpest decline in output seen since March 2018 and the biggest drop in workforce numbers since November 2012
Only house-builders saw any growth in May, according to the latest monthly survey of construction purchasing managers but this was not enough to offset the industry-wide impacts of lower volumes of commercial work and civil engineering activity.
New orders also decreased across the construction sector, with surveyrespondents noting that subdued domestic economic conditions had led to project delays and fewer tender opportunities.
At 48.6 in May, down from 50.5 in April, the headline seasonally adjusted
IHS Markit/CIPS UK Construction Total Activity Index (what used to be known as the purchasing managers index, or PMI) registered below the 50.0 no-change mark for the third time in the past four months. The latest reading was the lowest since the snow-related downturn in construction output during March 2018.
Commercial building was the weakest area of construction activity in May, with output falling to the greatest extent since September 2017. Survey respondents widely commented that clients had opted to hold back on major spending decisions in response to Brexit uncertainty and concerns about the economic outlook.
May data also revealed a decline in civil engineering activity for the fourth consecutive month. Construction companies cited constrained client budgets and a headwind from domestic political uncertainty.
Residential work continued to expand in May, albeit at the weakest pace for three months. Higher levels of house building have been recorded in each month since February 2018.
The latest survey pointed to a modest reduction in new orders received by UK construction companies, with the rate of decline the steepest since March 2018. Construction companies reported strong competition, hesitancy among clients and longer sales conversion periods, largely reflecting subdued demand conditions in May.
Reduced workloads led to more cautious recruitment strategies and the non-replacement of departing staff in May. As a result, the latest survey pointed to the sharpest drop in construction employment for six-and-a-half years.
Construction companies reported another decline in their purchasing activity. Although only marginal, the latest reduction was the largest since September 2017. Supply chain pressures persisted in May, which led to another sharp lengthening of average lead times among vendors. There were a number of reports citing low stocks and shortages of materials (particularly plasterboard).
Although fuel and energy costs pushed up average input prices, the overall rate of input price inflation eased to its softest since June 2016.
Meanwhile, construction firms signalled a fall in business optimism to its weakest since October 2018. Survey respondents widely cited concerns that domestic political and economic uncertainty would dampen business activity growth over the next 12 months