PMI rises from June, but confidence remains low

The latest market indicator survey from IHS Markit/CIPS has been released, showing that UK construction sector output declined for the third month running in July.

Despite posting a higher figure than June’s ten-year low of 43.1, at 45.3, July’s figures show lower volumes of work across all three broad categories of activity.

The latest survey revealed a sharp drop in new orders, with survey respondents citing subdued economic conditions and domestic political uncertainty.

The headline seasonally adjusted IHS Markit/CIPS UK Construction Total Activity Index reading signalled a marked downturn in total construction activity, and registered below the 50.0 no-change marker for the fifth time in the past six months.

Looking at the breakdown of sectors, commercial construction was the worst performing category in July, followed closely by civil engineering activity. Survey respondents suggested that Brexit uncertainty was plaguing decisions and creating risk aversion among clients in commercial work. While some survey respondents also noted that delays to contract awards for infrastructure work had acted as a headwind to civil engineering activity.

Another previously successful sector, house building, also fell. This is the second month in a row, although the rate of decline was modest compared to the three-year record seen in June. Reports from construction companies suggested that sluggish housing market conditions had a negative influence on residential work during the latest survey period.

The latest survey showed a downturn in total order books across the construction sector for the fourth successive month, which is the longest continuous period of decline since 2016. Once again, respondents pointed to a lack of tender opportunities amid weaker domestic economic conditions and ongoing political uncertainty.

Demand for construction products and materials continued to soften, relieving some of the pressure on suppliers and allowing lead times to even off. However, this reflects the sharp drop in construction companies confidence regarding the year-ahead outlook for business activity, with the latest reading was the lowest since November 2012.

Brexit uncertainty, the prospect of a General Election and delays to domestic infrastructure projects, creating consternation amongst the sector.

Tim Moore, Economics Associate Director at IHS Markit, which compiles the survey: “UK construction output remains on a downward trajectory and another sharp drop in new orders has reduced the likelihood of a turnaround in the coming months.

“Total business activity declined at a softer pace than the ten-year record seen in June, but this should not detract attention from the challenges ahead for the construction sector. Customer demand has been squeezed on all sides in recent months, which has pushed down business expectations to the lowest since the second half of 2012.

“July data revealed declines in house building, commercial work and civil engineering, with all three areas suffering to some degree from domestic political uncertainty and delayed decision-making.

“Construction companies have started to respond to lower workloads by cutting back on input buying, staffing numbers and sub-contractor usage. If the current speed of construction sector retrenchment is sustained, it will soon ripple through the supply chain and spill overs to other parts of the UK economy will quickly become apparent.”

Duncan Brock, Group Director at the Chartered Institute of Procurement & Supply: “Moving into the second half of the year it will take the sector some time to dig its way out of this deep hole. As the autumn and the potential negative impacts of a no-deal exit from the EU threaten, any significant recovery is unlikely to be on the horizon until 2020.

“Construction optimism is at its lowest since November 2012, so there’s no time to lose in injecting some stability and certainty into the economy and Brexit plans before a recovery of months turns into years.”

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