On a more positive note, confidence towards future growth prospects improved, with many firms anticipating an increase in new project wins later in the year. Meanwhile, intense cost pressures continued across the UK construction sector.
The seasonally adjusted IHS Markit/CIPS UK Construction Purchasing Managers’ Index® (PMI®) posted 50.2 in January, down from 52.2 in December. The figure was just above the neutral 50.0 no-change mark, thereby signalling a fractional rate of growth that was the weakest for four months.
The latest data signalled that the sector’s main driver of growth in recent months, house building, slipped into decline, ending a 16-month expansion.
Meanwhile, commercial building returned to growth, reversing a six-month period of decline, though the pace of expansion was only marginal. Civil engineering activity also rose, representing an improvement on the declines seen late last year, though the increase was likewise only very modest.
The rate of job creation eased to an 18-month low in line with the reduced growth of building activity. Whilst some firms hired additional staff in anticipation of future new project wins, others reported job shedding in response to lower workloads.
New orders received by UK construction companies decreased slightly for the first time in four months during the latest survey period. Many respondents linked falling new business to worries fuelled by general political and economic uncertainty.
Despite softening marginally since December, cost pressures remained intense in January. Inflation in input costs was driven by a variety of materials such as bricks, copper and timber.
Sub-contractor usage increased during January, thereby ending a ten-month sequence of decline. Furthermore, the latest expansion was the strongest seen since November 2016. In response, sub-contractor availability fell sharply.
Despite subdued total industry activity growth and falling new orders, optimism among UK construction companies improved in January. Many firms anticipate a pick-up in new business wins later in the year.
Sam Teague, Economist at IHS Markit and author of the IHS Markit/CIPS Construction PMI® said:
“January’s PMI data indicated a difficult start to 2018 for the UK’s construction sector, underlined by business activity growth slumping to a four-month low and new orders sliding back into decline.
“A contraction in house building added to the lacklustre commercial building and civil engineering markets, and reduced inflows of new work suggest overall activity could slip into decline in February. Furthermore, cost pressures remained intense, fuelled by shortages of input materials and high costs for imported products.
“Survey respondents reported increased hesitance among clients to invest in new projects amid heightened concerns over the UK economic outlook. Encouragingly, however, firms generally expect things to improve later in the year. Constructors’ optimism towards future growth prospects reached a seven-month high. Many forecasted that the soft patch in construction demand would be short-lived and new project wins would pick up throughout the year, though this will inevitably depend on how Brexit negotiations play out. Despite the upturn, optimism remains worryingly low by historical standards.”
Duncan Brock, Director of Customer Relationships at the Chartered Institute of Procurement & Supply, said:
“The construction PMI delivered meagre results for January as any hopes for a stellar start to the year were eclipsed by a surprisingly poor show from the housing sector, offering its worst performance since July 2016. Not even a marginal improvement in commercial and civil engineering could prevent a near-stagnation in overall activity as the index hovered near the no-change mark.
“The blocks to progress included a sharp rise in costs and a shortage of key materials, which contributed to longer lead times as supplier capabilities were stretched to their limits.
“Against this challenging backdrop, though larger orders from cautious clients also failed to materialise, firms retained a sunny disposition with optimism at a seven-month high and a slight rise in employment continued.
“With construction teetering on the edge of contraction, this surprise outcome will serve as a jolt to policymakers, that the impact of political and economic uncertainty remains large at the beginning of 2018.”
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