Construction activity drops again

Construction activity continues to decline, with September figures registering the second sharpest dip since April 2009.

The third quarter has done little to turn around fortunes for the sector, with 2019 already registering the sharpest dip since 2009 in June, September’s figures bringing little confidence.

The headline seasonally adjusted IHS Markit/CIPS UK Construction Total Activity Index posted 43.3 in September, down from 45.0 recorded in August; signalling a more severe downturn in building activity across the UK.

New orders suffered from an historically steep drop, while firms trimmed employment at the fastest rate since the end of 2010 due to unfavourable demand, client hesitancy and low confidence.

All three broad categories of work have suffered, with commercial activity the worst-performing – continuing the trend extending since March. Meanwhile, civil engineering activity dropped at a similarly sharp rate that was the fastest in close to a decade. A fourth successive monthly decrease in residential building was also signalled.

Latest survey data highlighted further demand weakness in the UK construction sector. Respondents attributed the marked slowdown to Brexit uncertainty and the resulting hesitancy caused among clients, as well as a general underlying weakness in demand.

Looking ahead, UK construction firms were mildly optimistic that output volumes would pick up over the coming 12 months, although the level of business confidence was weak by historical standards. Competitive pressures, Brexit uncertainty and concerns towards the economy led to a subdued year-ahead outlook.

In line with weak optimism, further cost-cutting efforts were apparent as employment was reduced in the UK construction sector during the latest survey period. The fall in staffing levels was the sixth in as many months and the strongest since the end of 2010.

Joe Hayes, Economist at IHS Markit, which compiles the survey, commented: “The UK construction sector remained mired in a downturn at the end of the third quarter, according to the latest PMI data. Activity is being pulled down at its second-fastest clip for over a decade as firms are buffeted by client hesitancy, heightened Brexit uncertainty and a weak outlook for the UK economy. The commercial sector was a notable casualty in September, with building activity here falling at the fastest rate since April 2009, highlighting the damaging effects of project delays and belt-tightening.

“Low confidence has subsequently caused construction order books to fall substantially. Panellists reported another sharp drop in demand in September that was one of the strongest in the post-crisis era. Forward-looking indicators suggest that businesses are bracing themselves for a protracted construction slump, with input purchasing and employment both falling at rates unsurpassed since 2010.

“Overall, the performance of the UK economy once again hinges on the service sector showing a marked degree of resilience to offset the weakness seen in construction and manufacturing.”

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