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Construction growth eases to 11-month low in July

UK construction companies recorded another growth slowdown in July, reflecting lower volumes of commercial building and a softer expansion of housing activity. The latest survey also revealed a reduction in new business volumes for the first time since August 2016, which acted as a headwind to job creation and input buying across the construction sector. Intense supply chain pressures also continued in July and prices for construction materials increased at one of the sharpest rates since the first half of 2011.

Reportedly adjusted for ‘seasonal influences’, the IHS Markit/CIPS UK Construction Purchasing Managers’ Index (PMI) dropped from 54.8 in June to 51.9 in July, to signal the weakest construction performance since August 2016. The latest reading was below the long-run survey average (54.5) and pointed to only a moderate pace of business activity growth.

Tim Moore, associate director at IHS Markit and author of the IHS Markit/CIPS Construction PMI, said: “July data reveals a growth slowdown in the UK construction sector, mainly driven by lower volumes of commercial development and a loss of momentum for house building. Weaker contributions from the cyclically sensitive areas of construction activity more than offset resilience in the civil engineering sector.

“Worries about the economic outlook and heightened political uncertainty were key factors contributing to subdued demand. Construction firms reported that clients were more reluctant to spend and had opted to take longer in committing to new projects.

“There was a knock-on impact for job creation and input buying following the largest downturn in order books since August 2016. However, supply chain pressures remained intense, reflecting low stocks among vendors, and materials prices continued to rise at one of the fastest rates seen for six years.

“The combination of weaker order books and sharply rising construction costs gives concern that an extended soft patch for the construction sector may be on the horizon.”

Construction firms remained upbeat about their growth prospects, but the degree of optimism was the lowest since July 2016. This was attributed to heightened economic uncertainty and subdued confidence among clients.

Duncan Brock, director of customer relationships at the Chartered Institute of Procurement & Supply, said: “The number of new orders dropped significantly this month and at the fastest rate since August 2016, as commitment-averse clients contributed to the sector’s weak trajectory.

“Commercial building activity slowed for the first time in five months and was the main drag on the Index. Housing, the shining light of the sector eased marginally, but produced the slowest growth since April, as parallels with the darker days of Brexit, worries about the UK economy and post-election uncertainty can be seen across the construction sector.

“Continuing price pressures from the weak pound lingered, driving cost inflation near to a six-year peak, stifling purchasing activity and jobs growth. All in all, a challenging start to Q3 and there are possible roadblocks ahead for the sector in the rest of 2017, with longer lead times and suppliers struggling with stock levels, which adds insult to injury.”

Sarah McMonagle, director of external affairs at the Federation of Master Builders (FMB), said: “These figures represent the weakest monthly performance in the UK construction industry for almost one year. Construction companies are suffering from ever-increasing costs and this is starting to act as a drag on growth. More specifically, the increase in construction material prices and higher wages and salaries due to the construction skills shortages will no doubt have contributed to these disappointing results. The commercial sector in particular fell at its fastest pace for 12 months but we also saw a loss of pace among house builders. However, although the construction sector is growing at a slower pace, it is still growing and therefore there is no reason to panic.”

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