Weakest upturn in UK construction output for 12 months in August

August survey data indicated that the UK construction sector continued to experience a ‘slowdown’ this summer. Reduced levels of commercial work were a key source of weakness, which offset robust growth in residential building.

There were also signs of a sustained ‘soft patch’ ahead, with new business volumes falling for the second month running. Survey respondents linked subdued demand to reduced business investment and heightened economic uncertainty. As a result, construction firms exerted greater caution in terms of their staff hiring, with employment numbers rising at the slowest pace since July 2016.

At 51.1 in August, the seasonally adjusted IHS Markit/CIPS UK Construction Purchasing Managers’ Index (PMI) remained above the 50.0 no-change threshold for the twelfth month running. However, the latest reading was down from 51.9 in July and pointed to the weakest overall UK construction performance since August 2016. A key reason for the slowdown was reportedly a lack of new orders to replace completed projects, according the survey respondents.

Residential building was the only area to buck the overall trend in August, with housing activity found to be rising at a robust and accelerated pace since the previous month. Meanwhile, civil engineering activity was found to be ‘close to stagnation’ and commercial work is said to have dropped at the fastest pace since July 2016. Reports from survey respondents widely suggested that concerns about the UK economic outlook had weighed on the commercial development sector, with clients opting to delay spending decisions and, in some cases, scale back planned projects.

Total new order volumes dropped for the second month running in August, although the rate of contraction was only marginal and slower than seen in July. Survey respondents continued to cite reluctance to commit to new construction projects, linked to general economic uncertainty and less favourable market conditions.

On a more positive note, cost pressures were the weakest since September 2016. Survey respondents noted that exchange rate depreciation continued to drive up prices for construction materials, but some commented on successful negotiations with suppliers against a backdrop of softer market conditions.

Duncan Brock, director of customer relationships at the Chartered Institute of Procurement & Supply, said: “The sector hit a roadblock this month as purchasing activity slowed for the third month and new business wins were hard to come by. Reduced government spending, economic uncertainty and Brexit-delayed decision-making among clients were largely to blame.

“The struggling commercial sector drove this disappointment, languishing under the pressure with the fastest drop in activity in over a year. Job creation was nothing to shout about and showed signs of a slowdown, as companies reined back additional spending.

“But any further drag on the construction sector overall was halted by the continuing strong performance by housebuilders, defying expectations with a good month. The sector was also offered some respite from the ongoing march of rising prices as input price inflation weakened.

“This good fortune in prices is unlikely to continue as suppliers scrabble to match the demand for an increasing number of materials in short supply and delivery times lengthened. Price rises will become inevitable if builders have to compete to get what they need.

“In the near-term future, without those new orders waiting in the wings, the performance of the construction sector is likely to continue to be downbeat.”

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