Markit/CIPS report indicates loss of momentum in UK construction

According to the latest Markit/CIPS UK report, April signalled a further loss of momentum across the UK construction sector, with new order volumes stagnating and overall business activity expanding at its slowest pace since 2013. Subdued demand conditions contributed to one of the weakest rises in employment numbers recorded over the past three years, while at the same time, construction firms indicated a softer increase in input buying snd noted a renewed fall in optimism regarding the year-ahead business outlook.

Commercial building was the strongest performing broad category in April, although the upturn remained the slowest since July 2013. Residential construction growth rebounded only slightly from March’s low, while civil engineering activity expanded at the weakest pace so far in 2016.

This overall slowdown in construction output growth reflected the stagnation of new business volumes in April. The latest survey indicated the weakest momentum in three years, with construction companies indicating that heightened uncertainty about the economic outlook and a general unwillingness to commit to new projects all weighed on client spending.

Construction firms signalled a renewed decline in confidence about the year-ahead business outlook on April, resuming the general downward trend seen since June 2015. The latest reading pointed to the weakest degree of positive sentiment for almost three years, which survey respondents mainly linked to stagnating new business volumes and a lack of new invitations to tender.

Staffing levels continued to increase across the construction sector throughout April. Job creation has been recorded in each month since June 2013, which represents the longest period of sustained employment for around a decade. However, the latest increase in payroll numbers was only modest and some firms commented on more cautious hiring policies in response to softer demand patterns. This contributed to a rise in sub-contractor usage for the first time in three months.

Supply chain pressures eased again in April, as highlighted by the least marked lengthening of vendor delivery times since November 2010. Some firms commented on softer demand for raw materials. Reflecting this, latest data pointed to the weakest increase in input buying for almost three years. However, cost inflation picked up sharply and was the fastest recorded since July 2015.

Tim Moore, Senior Economist at Markit and author of the Markit/CIPS Construction PMI® , said: “UK construction firms reported their worst month for almost three years in April, meaning that the first quarter slowdown is unlikely to prove temporary. “Stalling new order volumes not only set the scene for further weakness ahead, but are already weighing on staff hiring and input buying across the construction sector. “Softer growth forecasts for the UK economy alongside uncertainty ahead of the EU referendum appear to have provided reasons for clients to delay major spending decisions until the fog has lifted. “An additional factor dragging on construction sector performance is the lack of momentum in residential building. April’s survey highlighted one of the weakest rises in housing activity since early-2013, suggesting that greater caution in this sub-sector is adding to the sluggish growth conditions seen across the wider construction industry.”

Commenting on the report, David Noble, Group Chief Executive Officer at the Chartered Institute of Procurement & Supply, said: “Although UK construction grew marginally in April, clouds of uncertainty are hovering overhead, depressing the industry’s outlook. Business activity expanded at its weakest pace since June 2013, clearly pointing to a loss of momentum in the sector. “Fears over weaker UK and global economic growth dealt a blow to confidence in the construction sector, leading to delays in new spending commitments. The prospect of the EU referendum and its outcome in June are likely to add to uncertainty too, with many construction firms preferring to wait and see what happens before making any decisions. “Construction companies adopted a more cautious approach to purchasing and hiring, leading to a rise in sub-contractor usage to tide them over until the outlook becomes clearer. The slowdown in new order growth in April suggests that though spring may be in the air, sunnier times may still be a way off for the construction sector, at least for the time being.”

Adapted from press release by Rebecca Bowden

Read the article online at: https://www.worldcement.com/europe-cis/05052016/markit-cips-report-indicates-loss-of-momentum-in-uk-construction-42/