Saturday, 3 September 2016

UK building sector stabilises in August with a rise in staffing levels and confidence

Britain's construction sector has largely recovered from its post-Brexit slump adding to hopes that EU referendum uncertainty may be limited.

The UK construction industry showed encouraging signs of recovery in August, contracting less than in July, according to the Markit/CIPS purchasing managers' index (PMI) for the sector rose to 49.2 in August, but stayed below the 50 level, which indicates contraction.

Purchasing prices rose at the fastest pace for just over five years amid reports that exchange rate depreciation had acted as a catalyst for increased charges among suppliers of construction materials.

At 49.2 in August, the seasonally adjusted Markit/CIPS UK Construction Purchasing Managers’ Index® (PMI® ) remained below the 50.0 no-change threshold for the third consecutive month.

However, the index was up from July’s 85- month low (45.9), and the latest reading signalled the slowest pace of decline since the downturn began in June. Sub-sector data pointed to much slower reductions in housing activity and commercial building than those recorded in July. In both cases, the rate of contraction in August was the slowest for three months.

Meanwhile, civil engineering activity stabilised in August, following a reduction during the previous month. Reports from survey respondents suggested that Brexit uncertainty continued to act as a brake on the construction sector during August, especially in terms of house building and commercial work.

However, a number of firms noted that sales volumes had been more resilient than expected. Some panel members also commented on signs of a rebound in client confidence from the lows seen earlier this summer. Reflecting this, latest data highlighted that incoming new work decreased at the slowest pace since May.

Signs of a more stable trend for new business volumes resulted in a marginal expansion of staffing levels across the construction sector in August. However, sub-contractor usage continued to decrease, and rates charged by sub-contractors rose at the second-slowest pace since June 2013.

Construction firms also cut back on their purchasing activity in August, which extended the current period of decline to three months. Softer demand for construction materials resulted in the least marked deterioration in supplier performance since April.

August data indicated that input cost inflation picked up for the third month running and reached its highest level since July 2011. Survey respondents overwhelmingly linked the latest rise in input prices to exchange rate depreciation. Looking ahead, construction firms pointed to a rebound in business confidence from July’s 39- month low. Although the degree of positive sentiment was the highest since May, it remained close to the weakest recorded over the past three years. 

However, the Brexit vote was still the main factor weighing on activity, the report said.
Tim Moore, senior economist at Markit, said: "Construction firms cited a nascent recovery in client confidence since the EU referendum result and a relatively steady flow of invitations to tender in August.

"However, the latest survey indicates only a partial move towards stabilisation, rather than a return to business as usual across the construction sector.

"There were still widespread reports that Brexit uncertainty had dampened demand and slowed progress on planned developments, especially in relation to large projects."

David Noble, group chief executive at the Chartered Institute of Procurement & Supply, added that the weak pound had pushed up purchasing costs for the sector "at a rate not seen for half a decade".

"Firms reduced their purchasing volumes as a result, as new orders and activity continued to fall - though at a more moderate rate compared to last month," he added.
Industry recession


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