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Construction sector remains firmly mired in downturn, new figures reveal

Construction sector remains firmly mired in downturn, new figures reveal.

Continued Brexit uncertainty and resulting concerns for the economy saw the UK construction sector remain firmly stuck in a downturn at the end of the third quarter, according to the latest monthly IHS Markit/CIPS figures released today (Wednesday 2 October). 

The report’s key figures showed that:

  • Commercial activity remains the sector’s weakest-performing category;
  • Second-quickest fall in new orders for over a decade;
  • Employment cut to greatest extent since December 2010.

Building activity fell at the second-fastest rate since April 2009, only narrowly outpaced by June's decline. A historically steep drop in new orders was also registered, while firms trimmed employment at the fastest rate since the end of 2010 due to unfavourable demand, client hesitancy and low confidence. Although there was a marginal pick-up in optimism, the level signalled by survey data was still historically weak.

The headline seasonally adjusted IHS Markit/CIPS UK Construction Total Activity Index posted 43.3 in September, down from 45.0 recorded in August and thereby signalling a more severe downturn in building activity across the UK. Moreover, the deterioration was the second-strongest since April 2009 and broad-based across all three broad categories of construction work.

As has been the case since March, commercial activity was the worst-performing segment. Here, the contraction gathered pace and was marked overall. Meanwhile, civil engineering activity dropped at a similarly sharp rate that was the fastest in close to a decade. A fourth successive monthly decrease in residential building was also signalled.

Having fallen at the steepest rate since March 2009 last month, there was little sign of any construction recovery in September as new work inflows dropped at similarly substantial pace. Panellists attributed the marked slowdown to Brexit uncertainty and the resulting hesitancy caused among clients, as well as a general underlying weakness in demand.

The strong dip in sales coincided with a further tapering of purchasing activity by UK construction companies in September. Buying levels declined at the joint-fastest rate since January 2010 due to lower operational requirements and increased efforts to contain costs.

Looking ahead, UK construction firms were mildly optimistic that output volumes would pick up over the coming 12 months, although the level of business confidence was weak by historical standards. Competitive pressures, Brexit uncertainty and concerns towards the economy led to a subdued year-ahead outlook.

Joe Hayes, economist at IHS Markit, which compiles the survey, said: “The UK construction sector remained mired in a downturn at the end of the third quarter. Activity is being pulled down at its second-fastest clip for over a decade as firms are buffeted by client hesitancy, heightened Brexit uncertainty and a weak outlook for the UK economy.

“The commercial sector was a notable casualty in September, with building activity here falling at the fastest rate since April 2009, highlighting the damaging effects of project delays and belt-tightening.

"Low confidence has subsequently caused construction order books to fall substantially. Panellists reported another sharp drop in demand in September that was one of the strongest in the post-crisis era. Forward looking indicators suggest that businesses are bracing themselves for a protracted construction slump, with input purchasing and employment both falling at rates unsurpassed since 2010.”

Duncan Brock, group director at the Chartered Institute of Procurement & Supply, said: "The construction sector offered another devastating result in September with the second fastest fall in new orders since March 2009 and the financial crisis. After a relentless six-month decline in order books driven by Brexit uncertainty and political indecision, this is hardly surprising.

"Looking ahead the signs do not look positive. Even a moderation in input prices since March 2019 and some moderate improvement in supply chain pressures will not be enough to keep the wolf from the door as no-deal looms and businesses remain Brexit unsteady."

Mark Robinson, chief executive of public sector procurement specialists the Scape Group, said: “It is incredibly concerning to see that the industry’s downward trajectory continues. We are seeing the biggest decline in new work, new orders and employment levels for a decade, when we were in the middle of a financial crisis. The parallels between now and then cannot be ignored. We are facing significant economic upheaval with no end to the uncertainty in sight and the construction sector is responding accordingly, with both public and private sector clients exercising caution.”

Andrew Symms, head of construction at DWF, said: “These figures confirm the negative trend in the economy as a result of political uncertainties. Given the continued tensions over Brexit, this is unlikely to change until Brexit is resolved and, even then, it is unclear the direction of the economy subsequently. Only time will tell what will happen but businesses in the sector will need to take positive steps to understand their supply chains, mitigate risks and ensure, to the best of their ability, that financing is available in case conditions deteriorate further.”

Markus Kuger, chief economist at Dun & Bradstreet said: “Although most of western Europe is showing increasing level of stress against the backdrop of slowing global growth and an escalating trade war, the additional risk of an un-managed Brexit is impacting business optimism in the UK. With political tensions high ahead of the 31 October Brexit deadline, it is highly likely that business confidence will continue to waver and lead to further adverse impacts on the economy. In line with the continued uncertainty, Dun & Bradstreet is maintaining its ‘deteriorating’ risk outlook and ‘medium risk’ rating for the UK economy.”