Construction suffers sharpest fall in new work for a decade

The UK’s construction sector has seen its sharpest decline in new work since March 2009, with continued uncertainty over Brexit taking the lion’s share of the blame, according to the latest Construction Purchasing Managers' Index (PMI).

August data showed business activity declining for the fourth consecutive month and at a faster rate than in July. The worst performing area of activity in August was commercial building, with respondents saying they were seeing delayed decision-making among clients in response to domestic political uncertainty.

Business expectations for the year ahead have also fallen sharply since July to their least optimistic point since December 2008.

The IHS Markit/CIPS UK Construction Purchasing Managers’ Index stood at 45.0 in August, down slightly from 45.3 in July and below the 50.0 no-change threshold for the fourth consecutive month. Businesses surveyed blamed lower volumes of construction output on worsening order books and a lack of new projects to replace completed contracts.

August saw a decrease in all three broad categories of construction work with Brexit-related uncertainty causing clients to tighten budgets and making them averse to risks. Civil engineering activity also dropped at a relatively sharp pace although house building fell only slightly and at a slower rate of decline than that seen since the downturn began in June.

Construction companies said new orders have dropped in each month since April and data showed the sharpest decline in new work since March 2009. However despite a sustained reduction in new orders, employment bucked the trend during August with only a marginal drop in staffing levels.

For the fifth consecutive month in August input buying decreased – representing the longest period of decline since the first half of 2013. However softer demand for construction products and materials helped to alleviate pressure on supply chains and delivery delays from vendors were uncommon by the standards of the last three years. Input cost inflation fell to its lowest since March 2016.

Business optimism among respondents fell for the second month running in August, with the degree of positive sentiment the weakest since December 2008.

Tim Moore, economics associate director at IHS Markit, said: “Domestic political uncertainty continued to hold back the UK construction sector in August, with survey respondents indicating that delays to spending decisions had contributed to the sharpest fall in new work for over 10 years.”

Duncan Brock, group director at CIPS, said: “The sector fell deeper into contraction as continuing uncertainty and a weakened UK economy took a sizeable bite out of this month’s construction activity. Inevitably business confidence followed suit, dropping like a brick to its worst since December 2008 and close to the lowest depth seen in the previous recession.”

Jonathan White, UK head of infrastructure, building and construction at KPMG, said: “Another consecutive month of declining outputs paints a bleak picture of the sector. It’s likely we’re going to see a muted pipeline of projects until we have a clearer vision on what the country’s economic and political future will look like, given some large-scale plans are being halted, preventing shovels from going in the ground. There is still a pool of eager investors and demand for new work, but it’s currently a case of hanging fire until the mist clears. Only then, when people feel surer about the months ahead, will we see some momentum build.”

Mark Robinson, Scape Group chief executive, said: “This new data paints a gloomy picture of the industry. The problem is that both the public and private sector are delaying spending in the run-up to the Brexit crunch date and business optimism has been knocked down to levels not seen since towards the end of the 2007 recession. Despite domestic political uncertainty, we continue to need new schools, roads and hospitals. Business will brighten up again and we must have the manpower in place to build for when it does.”

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