Civil engineering drives construction growth in October

UK construction growth increased during October, driven by a rebound in civil engineering activity.

Having declined in both August and September, civil engineering activity grew at the strongest pace since July 2017. Housing and commercial construction also expanded, but at weaker rates.

The IHS Markit/CIPS UK Construction Purchasing Managers’ Index rose to 53.2 in October, the second highest level in 16 months. This was up on 52.1 in September and against the no-change reading of 50. A figure below 50 indicates contraction.

However, there was a slower rise in new business volumes, with firms mentioning intense market competition and delayed final decisions from clients. Business expectations fell to almost a six-year low.

Consequently, input purchasing increased more cautiously, at the slowest rate in seven months. Despite this, delivery times for construction products and materials continued to lengthen and firms continued to report stock shortages at vendors.

Cost pressures remained strong, despite the rate in input price inflation falling to a 27-month low, with companies highlighting increased costs for fuel, labour, timber and steel.

Duncan Brock, group director at CIPS, said: “These results point to the sector getting stuck in the mud as we approach March 2019, and with ongoing supplier delays and stock shortages, the sector may not be able to respond quickly enough anyway should there by a sudden upturn in fortunes.”

Trevor Balchin, economics director at IHS Markit, said: “Construction firms continued to raise headcounts at a strong pace, suggesting they are not expecting an imminent contraction in demand. That said, if the new orders and expectations indices remain at current levels or fall further, the employment index could also drift back towards the 50 no-change mark.”

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Construction sector lead times are worst for 3 years due to rising demand and stock/labour issues

Construction sector vendor lead times lengthened in August to the greatest degree in more than three years, according to the latest PMI.

Rising demand, low stock and labour shortages among suppliers impacted delivery times, meaning vendor performance deteriorated to its worst level since March 2015.

The IHS Markit/CIPS UK Construction Purchasing Managers’ Index slipped to 52.9 in August, down on 55.8 in July and against the no-change reading of 50.

Commercial building was the best performing sub sector, followed closely by residential work, while work on civil engineering projects decreased for the first time in five months.

Purchasing activity increased for the 11th consecutive month in August, though the latest upturn was the weakest since March. Despite stretched supply chains and rising energy-related costs, data indicated input price inflation edged down to its lowest since July 2016.

Duncan Brock, group director at CIPS, said: “If there is anything positive to note from this month, it would be that the rate of hiring remained strong. However, persistent pressures from skills shortages and slow rates of new orders will continue to hit business optimism still trailing below the survey’s average.

“The sector is hovering too close for comfort to the no change mark which makes it a contender for more disappointment next month. Though the path to Brexit is paved with good intentions, without significant progress the sector will soon be building castles in the air rather than on solid ground.”

Tim Moore, associate director at IHS Markit, said: “The degree of optimism reported in August remained constrained by external factors, including domestic political uncertainty, stretched supply chains and shortages of suitably skilled labour.”

Residential housing work shows robust rise in latest Construction Purchasing Manager's Index

UK construction companies indicated an uneven recovery in business activity at the end of 2017. A robust rise in residential building contrasted with falling work on commercial projects and stagnating civil engineering output.

The report indicates some positive signs for the coming months. We'd like to wish all involved in the building and construction industry a very successful 2018 and beyond on both a personal and professional level.
Summary

• Housing remains by far the best performing area of activity 
• New orders rise at fastest pace since May  
• Sharp rate of input price inflation continues in December

There were positive signals for the near-term business outlook, with new order growth reaching a seven-month high and job creation the strongest since June. However, intense supply chain pressures continued across the construction sector, while input cost inflation picked up from November’s 14-month low. 

The seasonally adjusted IHS Markit/CIPS UK Construction Purchasing Managers’ Index® (PMI®) posted 52.2 in December, down from 53.1 in November but above the 50.0 no-change threshold for the third month running. As a result, the latest reading signalled a moderate expansion of overall construction output at the end of 2017. 

Survey respondents indicated that house building remained a key engine of growth, with residential work expanding for the sixteenth consecutive month in December. In contrast, latest data indicated a moderate fall in commercial construction, thereby continuing the downward trend seen since July. Civil engineering work stabilised during the latest survey period, which ended a three-month period of decline.  

December data pointed to resilient demand for new construction projects, as highlighted by the fastest upturn in new order volumes since May. Anecdotal evidence cited an improved flow of enquires in recent months, alongside a gradual upturn in clients’ willingness to commit to new work.

The prospect of greater workloads ahead resulted in stronger rises in employment and purchasing activity during December.  In fact, the latest upturn in input buying was the steepest for two years, which survey respondents widely linked to increased business requirements. Robust demand for construction products and materials contributed to another sharp lengthening of suppliers’ delivery times at the end of 2017. 

Strong cost pressures persisted across the construction sector, driven by rising prices for a range of inputs. In particular, survey respondents noted higher prices for blocks, bricks, insulation and roof tiles, alongside continued rises in the cost of imported products. Although the rate of input cost inflation picked up since November, it remained softer than February’s peak.  

Despite a rebound in new order volumes during December, construction firms indicated a subdued degree of optimism regarding the business outlook for the next 12 months. The balance of companies expecting a rise in output levels remained among the weakest recorded since mid-2013, which survey respondents mainly linked to worries about the wider UK economic outlook.

Tim Moore, Associate Director at IHS Markit and author of the IHS Markit/CIPS Construction PMI® said:“The UK construction sector achieved a moderate expansion of business activity at the end of 2017, although the recovery remained uneven and slowed overall since November. Construction companies indicated that another strong contribution from house building helped to offset subdued civil engineering activity and reduced volumes of commercial work.

“Total new orders picked up at the fastest pace for seven months in December, which provides a positive signal for construction workloads in the short-term. Resilient demand and forthcoming project starts also led to greater job creation and the strongest increase in input buying for two years.

“However, construction firms indicated that longer-term business confidence is still relatively subdued, largely reflecting concerns about the domestic economic outlook. Exactly 37% of the survey panel forecast a rise in construction activity over the course of 2018, while around 11% anticipate a reduction. As a result, the balance of UK construction companies expecting growth in the year ahead remains among the weakest recorded by the survey since mid-2013.” 

Duncan Brock, Group Director at the Chartered Institute ofProcurement & Supply, said:“The sector offered little in terms of comfort at the end of 2017, though the pace of new business picked up to its strongest level since May, and purchasing activity rose to its fastest rate in two years, supply chains were under increasing pressure from all sides.

“The housing sector was the strongest performer again and materials for residential building were in greater demand fuelling longer delivery times, shortages of key materials and sharper input cost rises.

“It appears that the continued fall in commercial activity was testament to Brexit-related uncertainty on the horizon and the sector’s fear about the direction of the UK economy as clients still hesitated to spend on bigger projects.

“Business optimism was subdued at levels not seen since 2013, but the improvement in new order growth in December contributed to the biggest surge in job creation since June. Construction firms still anticipated future new work, in spite of the climate of continued uncertainty and wanted to ensure that skilled talented people were in place should the New Year offer more success than expected.”

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Weaker housing activity growth weighs on UK construction sector

March data revealed a slowdown in growth across the UK construction sector, led by a weaker rise in residential building activity. The latest survey also pointed to only a marginal increase in new work, which contributed to slower employment growth and a slight decline in input buying.

However, construction companies remain relatively upbeat about their near-term growth prospects, partly reflecting a stabilisation of client confidence from the post-referendum lows seen in 2016. Optimism regarding year-ahead business activity picked up in March to its second-highest since December 2015.

The seasonally adjusted Markit/CIPS UK Construction Purchasing Managers’ Index® (PMI®) dropped from 52.5 in February to 52.2 in March, to signal the joint-slowest upturn in overall construction output since the current period of expansion began in September 2016. Softer growth primarily reflected a loss of momentum in housing activity, which offset a rebound in both commercial and civil engineering activity. The latest increase in work on civil engineering projects was the fastest so far in 2017 and the strongest of the three sub-categories monitored by the survey in March.

Subdued new business growth persisted in March, with the rate of expansion unchanged from the four-month low seen in February. Construction companies noted that squeezed client budgets had acted as a brake on new business growth. There were also reports citing planning delays and greater cost consciousness among clients.

At the same time, survey respondents noted that reduced Brexit-related anxiety and the resilient economic backdrop had a positive impact on new invitations to tender. This helped underpin an improvement in business confidence regarding the growth outlook. Almost half of the survey panel expect a rise in business activity during the year ahead, against only 9% that forecast a decline.

Construction companies recorded a solid increase in employment numbers in March, although the pace of job creation eased to a three-month low. Meanwhile, sub-contractor usage dipped slightly since February, but construction firms continued to report a sharp drop in the availability of sub-contractors.

Input buying declined for only the second time since September 2016, which was mainly linked to subdued new business growth in March. Supplier performance nonetheless deteriorated at one of the fastest rates seen over the past two years, driven by low stocks among vendors.

Input cost inflation remained strong in March, linked to higher prices for imported materials and global commodity price rises. However, the overall rate of cost inflation eased further from the eight-and-half year peak seen in January.

Duncan Brock, Director of Customer Relationships at the Chartered Institute of Procurement & Supply, said:

“Where the housing sector acted as the main engine of growth over the last four years, this month it was slower and stuttering, while overall purchasing activity in the construction sector was disappointingly tame, shackled by a lack of new orders and rising costs.
“This downbeat effect took a small bite out of any strong rises in employment levels, as the increase in staff hiring was at a three-month low. But as the sector showed strong optimism for future business, concerns over the skilled labour availability are likely to persist in coming months.

“Pressure on suppliers remained intense, as they battled against lower stocks and made greater efforts to fight the pincer movement of a shortage in some materials and the continued force of higher global commodity prices.

“Now the trigger has been pulled to propel the UK out of the EU, the construction sector must keep an attentive eye on how the UK Government’s negotiations will play out and whether consumer and business caution returns to hamper further progress.”
Tim Moore, Senior Economist at IHS Markit and author of the Markit/CIPS Construction PMI®, said:

“UK construction firms experienced a growth slowdown in March, with the loss of momentum centred on housebuilding. A weaker trend for residential work has been reported throughout 2017 so far, which provides an indication that the cooling UK housing market has started to act as a drag on the construction sector.

“Civil engineering projects were the construction sector’s main growth engine in March, driven by rising infrastructure spending and a strong pipeline of new work throughout the UK.

“March data showed a slight rebound in commercial construction activity. Survey respondents noted that the resilient economic backdrop and receding Brexit-related anxieties have helped to stabilise client demand after the disruption to development projects last summer.

“Despite a relatively subdued rise in new work during March, UK construction firms reported a more sanguine assessment of their year-ahead growth prospects. Business confidence was among the highest seen since the end of 2015, which construction companies linked to upcoming tender opportunities, plans for increased marketing expenditure and hopes of a sustained recovery in clients’ willingness to spend.”

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Job creation in the construction industry at an eight month high but the price of materials increase sharply

The good news from a new survey is that UK’s builders increased their output in January, generating an 8-month high in job creation with healthy demand for new homes in particular driving this. However, there are signs of concern as growth slowed down a little on the month, and the price of construction materials increased sharply.

The Markit/CIPS UK Construction Purchasing Managers’ Index® (PMI®) slipped from 54.2 in December to 52.2 in January. Any score of above 50 indicates growth, so the industry is still expanding but the pace of improvement has slowed down.

January data revealed a slowdown in construction sector growth, with business activity and incoming new work both expanding at weaker rates than at the end of 2016. Despite this, survey respondents signalled that confidence regarding the year-ahead outlook picked up to its strongest since December 2015, largely reflecting new project starts and a resilient economic backdrop. This contributed to the fastest rise in employment numbers since May 2016. Meanwhile, exchange rate depreciation against the euro and the US dollar resulted in the strongest rate of input cost inflation since August 2008.

The headline index signalled the weakest rise in overall business activity since the post-referendum recovery began in September 2016. All three sub-sectors (housing, commercial and civil engineering) recorded softer rates of output growth in January. Although housebuilding remained the best performing category, the latest expansion was the weakest for five months.

Slower growth of business activity largely reflected a moderation in new order gains at the start of 2017. The latest rise in new work was the least marked since October 2016. While some construction firms commented on a boost to sales from improving domestic economic conditions, there were also reports citing subdued willingness to spend among clients in January.

There were more positive trends in terms of staff hiring across the construction sector at the start of 2017, which survey respondents mainly attributed to planned project starts during the coming months. The latest increase in employment numbers was the fastest for eight months, while sub-contractor usage rose at the steepest pace since December 2015.

Stronger job creation also reflected a sustained improvement in business confidence among construction companies in January. More than half of the survey panel (51%) forecast a rise in business activity over the next 12 months, while only 7% anticipate a reduction. The index measuring construction firms’ year-ahead expectations has now picked up in five of the past six months.

Meanwhile, latest data indicated a modest rebound in input buying in response to increased workloads and forthcoming project starts. This resulted in greater pressure on supplier capacity, with lead times from vendors lengthening to the largest degree since June 2015.

Average cost burdens increased at the steepest pace for almost eight-and-a-half years in January. This was widely linked to rising prices for imported materials at the start of 2017.

David Noble, Group Chief Executive Officer at the Chartered Institute of Procurement & Supply, said: 

“Despite the biggest rise in input costs since August 2008, the sector was in buoyant mood at the start of the year, with the highest level of confidence since December 2015.

“Continuing cost pressures from the weak pound and escalating commodity prices failed to impact significantly on purchasing volumes , as input buying increased following last month’s slight fall while job creation rose to an eight-month high. Previously stalled projects and plans were given the go-ahead as the sector ensured sufficient staff resource was in place to meet future demand.

“However, the dark cloud on the horizon was the continuing pressures on supply chains. Material shortages, lengthening delivery times and supplier performance, the weakest since June 2015, could become a roadblock to the sector’s continuing growth.

“In the short term at least, the outlook is positive, as long as economic conditions remain supportive and firms are able to control their rising costs.”

Tim Moore, Senior Economist at IHS Markit and author of the Markit/CIPS Construction PMI®, said:

“UK construction firms experienced a subdued start to 2017, with all the key categories of activity losing momentum. While housebuilding retained its position as the fastest growing part of the construction sector, the latest upturn was the weakest since the post-referendum rebound emerged in September 2016.

“New business volumes also expanded at a softer pace in January, but there were more positive trends in terms of staff hiring and business optimism regarding the year-ahead outlook. The latest survey revealed an accelerated rise in payroll numbers at construction companies, as well as the fastest upturn in sub-contractor usage since the end of 2015. A number of survey respondents commented on a boost to their workloads from the resilient economic backdrop, alongside a strong pipeline of new project starts in 2017.

“Meanwhile, the weak pound continued to have an inflationary impact on the UK construction sector in January. Purchasing costs increased at the strongest rate for almost eight-and-a-half years, as suppliers sought to pass on higher prices for commodities and imported construction materials.”


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Construction Products Association report growth for 15th quarter running!

Hot on the heels of the news from the Markit/CIPS purchasing managers' index (PMI) that growth was at its fastest for 9 months, the Construction Products Association has announced that Sales in Q4 of 2016 continued to grow for the fifteenth quarter in a row.

This is really positive news for building products manufacturers as we enter an interesting year with the unknowns of Brexit lurking.

On an annual basis, 78% of heavy side firms reported that sales had increased in Q4, whilst on the light side, 75% of firms reported that sales were higher than a year earlier, which was the highest balance since 2014 Q3.

However, as uncertainty intensifies and cost pressures from the fall in Sterling post-Referendum hit this year, the industry may struggle to experience similar growth. Among heavy side manufacturers only 6% on balance anticipate a rise in sales over 2017 Q1, and 29% on balance of light side manufacturers anticipate a rise during the same period.

Rebecca Larkin, CPA Senior Economist said: “Unsurprisingly, manufacturers’ expectations for 2017 appear to have been tempered by the uncertainty surrounding the economic and political outlook. Heavy side manufacturers appeared most exposed to the effects of Sterling’s depreciation during the second half of 2016. In Q4, two-thirds of firms reported an increase in costs, the highest in five years, and a further 89% anticipate an increase over the next year. Rising costs of imported raw materials continue to be a primary driver of cost inflation, but there is now an indication that currency weakness is filtering through to higher energy and fuel costs too.

“The impact of Brexit on the construction industry is, as yet, unclear, but it is unlikely this year will be as buoyant as last unless government is able to provide greater certainty and the industry is able to manage cost pressures.”

Key survey findings include

• Sales rose for 78% of heavy side firms and 75% of firms on the light side, on balance 
• A balance of 50% of heavy and light side firms reported that construction product sales rose in the fourth quarter of 2016 compared with Q3
• On balance, 6% of heavy side manufacturers anticipated a rise in sales in 2017 Q1, worsening from a balance of 45% in Q3 
• On the light side, 29% of firms expected an increase in product sales in the next quarter, compared to a balance of 67% in Q3
• Annual cost increases were reported by 78% of heavy side manufacturers and 71% of those on the light side
• Raw materials costs rose according to 78% of heavy side manufacturers and 88% of those on the light side
• Fuel and energy costs rose for 71% and 61% of heavy side manufacturers respectively

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Activity in Britain's construction sector expands at the fastest rate in 9 months

Britain's construction sector expanded in December with activity at its fastest rate in nine months, boosted by more house building, but sterling's weakness drove the biggest rise in costs in over five years.

The Markit/CIPS purchasing managers' index (PMI) rose to 54.2 in December, its strongest since March and well ahead of expectations in a Reuters poll for it to hold steady at November's reading of 52.8.mA figure above 50 indicates expansion.

But the figures also highlight the challenge Britain will face this year from sterling's plunge after the June vote to leave the European Union, which has pushed up business and household costs.

Markit said building costs rose last month at a rate not seen since April 2011, and that companies reported shortages of materials, possibly because of extra demand as they stocked up to beat further price increases.

"UK construction companies noted that the weaker sterling exchange rate had resulted in higher costs for a wide range of imported materials," survey author Tim Moore wrote.

Britain looks to have been one of the strongest-performing advanced economies last year, but most economists predict a slowdown in growth to 1.1 percent this year from double that in 2016 as inflation climbs.

House building accelerated in December, growing at the fastest rate since January, and may get extra momentum if government plans announced on Monday to build 200,000 new rural homes overcome local planning restrictions.

Civil engineering staged its biggest pick-up in growth in nearly two years, Markit said, but demand for commercial projects such as factories and shops remained lacklustre.

This reflected "an ongoing drag from subdued investment spending and heightened economic uncertainty," Moore said.

Construction activity reaches eight-month high as delayed projects resume after Brexit vote

November data indicates that the UK construction sector continued to rebound from a weak Q3 2016 as business activity and incoming new work increased at the strongest pace for eight months. Although both rates of expansion remained much softer than the peaks achieved at the start of 2014. Greater workloads underpinned a further solid rise in employment levels and input buying among construction firms. However, average cost burdens rose sharply, with the rate of inflation the steepest since April 2011.

The seasonally adjusted Markit/CIPS UK Construction Purchasing Managers’ Index® (PMI®) picked up slightly to 52.8 in November,from 52.6 in October, thereby signalling an expansion of total business activity for the third month running. Reports from survey respondents cited improved order books, alongside resilient client confidence and strong demand for residential projects. There were again reports that heightened economic uncertainty was a key factor weighing on output growth across the construction sector.

Housebuilding activity remained the best performing category of construction output duringNovember, despite the pace of expansion slipping to a three-month low. Construction firms meanwhile reported a marginal rebound in commercial activity, which ended a five-month period of decline. Civil engineering work remained the weakest area of activity.

Increased volumes of construction output were underpinned by a solid upturn in new work during November. The latest rise in incoming new business was the strongest since March and contrasted with a sustained decline in sales through the summer. Some construction firms noted that their workloads had been boosted by a resumption of projects that were delayed after the Brexit vote. However, there were also reports that the stronger inflation backdrop had led to intense competitive pressures and squeezed margins. 

UK construction companies reported a steep and accelerated rise in their cost burdens in November, with the rate of inflation the fastest for just over five-and-a-half years. This was overwhelmingly linked to supplier price hikes in response to exchange rate depreciation.Purchasing activity meanwhile increased at the fastest pace since the start of 2016.Stronger demand for inputs and low stocks among vendors resulted in the sharpest deterioration in supplier performance since June.

Job creation was maintained across the construction sector in November, while the latest survey also highlighted the fastest rise in subcontractor usage so far in 2016. A number of firms linked additional staff recruitment to robust confidence regarding the near-term demand outlook. That said, business confidence was still softer than seen during the first half of the year, with construction companies generally noting that Brexit-related uncertainty had the potential to weigh on business activity during 2017. 

David Noble, Group Chief Executive Officer at the Chartered Institute of Procurement & Supply,said: “The sector was on a firmer footing this month, as a slight uptick in overall activity and the strongest level of new business growth since March, resulted in more stability after a summer of uncertainty at the time of the EU vote.

“Purchasing activity grew at its fastest pace since the beginning of the year as stronger workflows and tenders materialising into actual projects prompted increased levels of stock building. This resulted in a sluggish response from suppliers, with the fastest lengthening of delivery times since June, as pressure on capacity and low stocks impacted on demand.

“Once again residential activity led the way, though at softer rates than those seen in October and at a more diminished rate than the survey’s long-range norm. Though this positive growth will provide some relief for the economy, continuing cost pressures will be a worry for the sector in the coming months. The impact of the weaker pound was widely felt in November, with cost inflation the strongest since early-2011. Higher prices were reported for a number of materials including bricks, blocks and slate, as businesses struggled with managing costs.Yet, in spite of this grip on precious margins, head counts were increased and demand for subcontractors was also sustained.

“Reports of lingering uncertainty around the progress of Brexit negotiations had business optimism divided, where only 45% of respondents expected a rise inactivity next year – one of the lowest since the middle of 2013. And, as commentators warn about more inflationary impacts next year, the sector will be concerned that decisions from policymakers must ensure these effects are minimalised so that growth is maintained."

Growth momentum of the UK Construction sector slows in April

April data 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 June 2013.

Subdued demand conditions contributed to one of the weakest rises in employment numbers recorded over the past three years. At the same time, construction firms indicted a softer increase in input buying and noted a renewed fall in optimism regarding the year-ahead business outlook. 


Key points:

• Business activity expands at weakest pace since June 2013 
• New work stagnates in April, contrasting with solid growth in March 
• Construction firms indicate reduced confidence about the business outlook

At 52.0 in April, the seasonally adjusted Markit/CIPS UK Construction Purchasing Managers’ Index® (PMI® ) registered above the critical 50.0 no-change threshold, which marked three years of sustained output growth across the construction sector. However, the latest reading was down from 54.2 in March and pointed to the slowest expansion of business activity since mid-2013. 

Commercial building was the strongest performing broad category of activity in April, although the latest upturn was the slowest since July 2013. Residential construction growth rebounded only slightly from March’s 38-month low, while civil engineering activity expanded at the weakest pace so far in 2016. 

The overall slowdown in construction output growth largely reflected stagnating new business volumes in April. Moreover, the latest survey signalled the weakest momentum for exactly three years. Construction companies cited a number of factors weighing on client spending, including heightened uncertainty about the economic outlook and a general unwillingness to commit to new projects. 

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Construction firms signalled a renewed decline in confidence about the year-ahead business outlook in April, thereby 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 during 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 during April. 

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.” 

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.” 

Construction output grows again but at its lowest rate since April 2015

The good news is the the Construction industry is yet again in growth, but the disappointing news is that the latest data from the Markit/CIPS UK Construction Purchasing Managers’ Index® (PMI®) shows that the growth is the lowest since April 2015.

February data highlighted a further loss of momentum across the UK construction sector, with output, new orders and employment all expanding at slower rates than at the start of 2016.

The headline seasonally adjusted Markit/CIPS UK Construction Purchasing Managers’ Index® (PMI®) registered 54.2 in February, down from 55.0 in January and the lowest since April 2015. Although still above the 50.0 value that separates expansion from contraction.

For the first time since January 2013, residential building was the worst performing sub-category of construction output. Moreover, the latest rise in housing activity was the slowest recorded since June 2013.

Growth of commercial building work also moderated in February, with the rate of expansion the softest since the election-related slowdown in May 2015. Civil engineering bucked the overall trend in February, with growth accelerating to its fastest for five months. Some firms pointed to a rebound in work on infrastructure projects.

Reports from survey respondents suggested that less favourable demand conditions and greater uncertainty about the economic outlook continued to act as a brake on the construction sector. Reflecting this, new business growth moderated for the third time in the past four months during February. The latest rise in overall volumes of new work was the slowest seen since April 2015. While construction firms noted that client spending was still generally expanding, there were some reports that business confidence had moderated in February and weighed on clients’ willingness to commit to new projects.

Softer output and new business growth resulted in weaker job creation across the UK construction sector during February. The latest rise in staffing levels was the slowest recorded since August 2013. Anecdotal evidence suggested that heightened uncertainty about the demand outlook had led to more subdued job hiring trends in February. Reflecting this, the latest survey indicated that construction firms were the least confident about the 12-month business outlook since December 2014.

Weaker projections for output growth contributed to more cautious input buying policies in February. The latest expansion of purchasing activity was the slowest for ten months. However, suppliers’ delivery times lengthened again, and at the second-strongest pace since June 2015. Construction companies noted that a squeeze on stock availability among suppliers continued to weigh on vendor performance.

Input cost inflation moderated in February and was close to its lowest seen over the past three years. Survey respondents noted that lower fuel and steel prices had helped to bring down overall cost inflation at their units.

Commenting on the report, David Noble, Group Chief Executive Officer at the Chartered Institute of Procurement & Supply, said:  

“The sector felt the pressure of challenging global economic conditions and softer demand growth as purchasing activity expanded at its weakest pace since April 2015. Suppliers’ delivery times got longer and some stock shortages added to their woes.

The housing sector, which once led the way with a robust performance, offered a poor show – the weakest growth for just over two-and-a-half years.

And, though overall growth was maintained, business confidence for the future was at its lowest since December 2014. The next few months will be critical to the understanding of whether this dampened optimism was justified and whether there are still more serious issues to be unearthed.”

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Fastest increase since March for Commercial Construction is the highlight of the latest Markit/CIPS report

July data signalled a slight overall loss of momentum across the UK construction sector, with business activity and incoming new work both expanding at slower rates than in the previous month. However the highlight was news that commercial activity rose at its fastest pace since March. 

The pace of job creation at construction companies nonetheless remained strong in July, while ongoing skill shortages across the sector contributed to a further steep reduction in sub-contractor availability. Moreover, sub-contractor charges once again rose at one of the fastest rates since the survey began in 1997.

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At 57.1 in July, the headline seasonally adjusted Markit/CIPS UK Construction Purchasing Managers’ Index® (PMI®) eased slightly from June’s four-month high of 58.1. Higher levels of construction output have been recorded in each month since May 2013, but the latest reading was lower than the average seen over this period (59.4), thereby highlighting a general growth slowdown from the peaks seen in 2014. 

Residential building remained the fastest growing broad area of the construction sector, according to the latest survey data. However, residential building saw the greatest loss of momentum since June, with the latest upturn in housing activity the second-slowest since June 2013. Civil engineering activity also expanded at a slower pace in July. Meanwhile, work on commercial projects bucked the overall slowdown, with activity rising at the fastest rate since March. 

Companies that reported an increase in business activity mainly cited strong inflows of new work. Anecdotal evidence also suggested that improving domestic economic conditions had created greater opportunities to tender, especially for commercial projects, while some construction firms noted that the resumption of delayed projects had provided support to business activity levels in July. However, measured overall, new order volumes expanded at a slightly slower pace than the eight-month high recorded in June.

In line with the trend for output and new orders, July’s survey data pointed to an overall slowdown in employment growth across the construction sector. However, the rate of job creation remained much stronger than the long-run survey average and there were widespread reports of skill shortages across the sector. As a result, sub-contractor availability dropped for the twenty-fifth month running in July, which is the longest continuous period recorded by the survey for over a decade. The latest rise in sub-contractor charges was only fractionally slower than the survey-record high seen in April.

Meanwhile, there were signs that some supply chain pressures have started to subside, as construction companies were the least downbeat about vendor performance since May 2012. Nonetheless, strong underlying demand for construction materials and low stocks at suppliers continued to drive up input prices in July, with the overall rate of cost inflation reaching its highest level since March.
Looking ahead, UK construction companies are highly upbeat about their growth prospects over the next 12 months, with more than half (55%) expecting an increase in business activity and only 4% forecasting a reduction. However, the resulting Future Business Activity Index was down from June’s 11-year high and the lowest since April. 

Commenting on the report, David Noble, Group Chief Executive Officer at the Chartered Institute of Procurement & Supply, said: 

“The sector almost held steady last month, though there will be some uneasiness over the housing sector exhibiting its second slowest activity growth in the last two years. Budget cutbacks and delayed decision-making will have had some impact on civil engineering activity and though housing is still a strong performer, commercial activity was the only area to see faster growth in July.

“New business wins were less in evidence as backlogs were tackled. Meanwhile, suppliers scrabbled to meet demand for a number of materials in short supply. The performance of suppliers continued to be muted, but the decline in performance was the least serious since May 2012. And though buying resumed at a slower pace, the response to new work and ongoing activity endured at a healthy rate.

“Overall the sector’s optimism was still strong, as staffing levels remained high in anticipation of future success, though issues around sourcing skilled individuals remained a thorn in the side of the sector.” 

UK construction industry reports strong growth in February

The latest Markit/CIPS purchasing managers' index (PMI) has reported that activity in the UK's construction industry increased during February.

The index rose by a point to 60.1, its highest level since October 2014. Any score above 50 indicates growth in the market.

The housing, commercial and civil engineering sectors all showed signs of accelerating growth.

Commenting on the construction figures, Tim Moore, Markit's senior economist, said: "The latest survey highlights renewed vitality within the UK construction sector, as output growth picked up further from the soft patch seen at the end of 2014.

"However, some construction companies noted that the uncertain general election outcome could prove a temporary bump in the road for new work."

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