Confidence shaken as market continues slide

With this month’s IHS Markit/CIPS UK Construction activity index showing a marked slowdown for the industry – with declines similar to those seen in 2009, the industry has reacted to the news with concern.

The two main drivers for this lack of confidence are Brexit uncertainty and lack of new orders – which suffered an historically steep drop this month. Confidence across the sector is low, with all categories of work suffering and employment levels dropping.

Gareth Belsham, director of the national property consultancy and surveyors Naismiths, commented: “The vice is being ratcheted ever tighter. Falling demand from investors and brutal, margin-slashing competition among contractors have sent confidence skittling.

“Many contractors are now fighting on two fronts and are being squeezed by rising input costs just as new orders fall sharply.

“With order books for the coming months getting steadily thinner, the slide in confidence is forcing some to cut costs wherever they can – and staffing levels are now being reduced at their sharpest rate since 2010.

“Through bitter experience, Britain’s construction sector has become adept at riding out both feast and famine. But even by its volatile standards, the rapid slowdown in demand is causing concern.

“After more than three years of gnawing uncertainty, the prospect of a Brexit deal – any Brexit deal – is still glistening like a mirage. Whether the coming weeks will miraculously deliver one is still open to question.

“What is beyond doubt is that the confidence-sapping inertia has led many developers to freeze investment, and the steady fall in new orders is inflicting ever greater pain on Britain’s builders.

“But there is only so long moth-balled projects and deferred investment decisions can be held back. The priority for the industry now is to ride out the storm and retain enough capability to cope with the day – whenever it comes – that demand snaps back to more normal levels.”

Mark Robinson, Scape Group chief executive, agreed: “As we head into autumn, when output in the construction industry typically falls, it is incredibly concerning to see that the industry’s downward trajectory continues. We are seeing the biggest decline in new work, new orders and employment levels for a decade, when we were in the middle of a financial crisis. The parallels between now and then cannot be ignored. We are facing significant economic upheaval with no end to the uncertainty in sight and the construction sector is responding accordingly, with both public and private sector clients exercising caution.

“Civil engineering work, which represents essential road and rail projects that keep our local communities moving and our economies growing, are grinding to a halt and even big ticket items like HS2 are being called into question. We desperately need clarity from the government on their legislative programme and detail on whether the EU is going to accept Boris’ proposed deal. Provide us with this clarity and businesses will finally be able to make decisions on projects that have been paused and pushed to the side. We shouldn’t hold our breathe and hope for an immediate Brexit bounce, but we can be mildly optimistic that there will be an up-tick in activity.”

The Federation of Master Builders (FMB) commented that construction should not be overlooked by the Government in no-deal Brexit preparation, in response to the construction PMI data published on Wednesday. The fall in staffing levels was the sixth in as many months and the strongest since the end of 2010.

Brian Berry, Chief Executive of the FMB, said: “The construction industry accounts for seven per cent of the UK’s GDP and over three million jobs. Today’s figures, which show the second-sharpest fall in output since 2009 and staffing levels since 2010, should be a concern for us all. With ambitious infrastructure and house building targets, the Government can’t afford to lose any more capacity in this industry.”

Berry continued: “The PMI data picks up on material shortages and bottlenecks already, even before leaving the EU, and this is likely to be a major concern in the event of a no-deal. I urge the Government to work with the industry to ensure that key construction products, critical to the building work this country needs, such as timber, are not held up at ports across the country in a no-deal scenario.”

Berry concluded: “It is encouraging to see the industry is more optimistic for the next 12 months and I hope that if the Government is able to secure a good exit deal with the EU, then client confidence will rebound, and the industry will start growing again.”

While Andrew Symms, head of construction at DWF, remarked: “The September PMI figures for the construction sector are pretty dark, with the sector experiencing the second fastest fall in new orders since March 2009.

“These figures confirm the negative trend in the economy as a result of political uncertainties. Given the continued tensions over Brexit, this is unlikely to change until Brexit is resolved and, even then, it is unclear the direction of the economy subsequently – will there be pent up demand which will then be released or will there be a continuation of the negative trend?

“Only time will tell what will happen but businesses in the sector will need to take positive steps to understand their supply chains, mitigate risks and ensure, to the best of their ability, that financing is available in case conditions deteriorate further.”

 

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