Construction activity sees steep drop

Construction activity in June showed the steepest drop in over ten years according to the latest statistics from IHS Markit/CIPS.

Alarm bells are sounding in the industry after June showed the weakest month since April 2009, with the headline seasonally adjusted IHS Markit/CIPS Construction Total Activity Index posting at 43.1. This is a sharp drop from May’s 48.6 Index register – and well below the 50.0 no change marker that the industry has been hovering around for some time.

Shoots of optimism still remain, with anticipated infrastructure projects cited as a key source, however, the latest survey reports levels of business optimism are close to May’s seven-month low.

With the latest figures showing the steepest reduction in overall construction output since April 2009, the industry desperately needs clarification on the Brexit issue to renew confidence in long-term planning.

All sectors of the industry have been affected, with house building recording the largest drop in three years, commercial work falling for the sixth consecutive month, and civil engineering showing the fastest contraction since October 2009.

Respondents to the survey cited Brexit uncertainty as the major factor in client reluctance to commit to projects and delays to projects starting on site in both the commercial and civil arenas, with longer wait times for infrastructure contract awards had all acted as a brake on business activity.

New work decreased for the third consecutive month, with the latest figures showing the rate of decline accelerating to its fastest since April 2009. While demand for staff remained relatively resilient throughout the month, with company’s retaining staff in anticipation of a recovery led by infrastructure projects.

Firms responding commented that a ‘wait and see’ approach is holding contract awards and site starts back, with softer economic conditions reducing client budgets.

Tim Moore, Associate Director at IHS Markit, which compiles the sur, commented: “The latest survey reveals weakness across the board for the UK construction sector, with house building, commercial work and civil engineering activity all falling sharply in June. Delays to new projects in response to deepening political and economic uncertainty were the main reasons cited by construction companies for the fastest drop in total construction output since April 2009. While the scale of the downturn is in no way comparable that seen during the global financial crisis, the abrupt loss of momentum in 2019 has been the worst experienced across the sector for a decade.

“Construction companies reported a continued brake on commercial work from clients opting to postpone spending, with decisions on new projects often pending greater clarity about the path to Brexit. Latest data meanwhile indicated another sharp fall in civil engineering, which also reflected delayed projects and longer wait times for contract awards.

“Worrying signals from the survey’s forward-looking indicators make it almost impossible to sugarcoat the Construction PMI data in June. In particular, new orders dropped to the largest extent for just over ten years, while demand for construction products and materials fell at the sharpest pace since the start of 2010.

“A continued lack of new work to replace completed projects illustrates the degree of urgency required from policymakers to help restore confidence and support the long-term health of the construction supply chain.”

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