Construction growth at lowest level for three years

April’s survey showed one of the weakest rises in housing activity since early-2013.

Business activity in the construction sector is expanding at its weakest pace since June 2013, according to the latest Markit/CIPS UK Construction Purchasing Managers’ Index.

New work stagnated in April, contrasting with solid growth in March, as construction firms indicate reduced confidence about the year ahead with subdued demand contributing to one of the weakest rises in employment numbers recorded over the past three years. 

At 52.0 in April, the seasonally adjusted PMI Index 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 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 for the slowdown including a lack of client spending due to increased uncertainty about the economic outlook and a general unwillingness to commit to new projects.

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. This points to the weakest degree of confidence for almost three years, which survey respondents mainly linked to stagnating new business volumes and a lack of new invitations to tender.

On the positive side, staffing levels continued to increase across the construction sector during April. Job creation has been recorded in every month since June 2013 - the longest period of sustained employment for around a decade. However, the latest increase in payroll numbers was fairly modest and some firms commented on more cautious hiring policies in response to lower demand.

Tim Moore, Senior Economist at Markit and author of the survey, 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.”

Moore said that softer growth forecasts for the UK economy alongside uncertainty ahead of the EU referendum looked to have provided reasons for clients to delay major spending decisions “until the fog has lifted”. He said that an additional factor slowing construction performance was the lack of momentum in residential building, with April’s survey highlighted one of the weakest rises in housing activity since early-2013.

Commenting on the report, David Noble, group chief executive officer at the Chartered Institute of Procurement & Supply, said: “Clouds of uncertainty are hovering overhead, depressing the industry’s outlook. 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.”

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