UK construction sees sharpest decline in new work since March 2009

For the fourth month in a row, the UK construction sector has declined, according to the key findings of the latest IHS MARKIT / CIPS UK CONSTRUCTION PMI® report.

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Commercial work was again the worst performing area of activity in August, with survey respondents citing delayed decision-making among clients in response to domestic political uncertainty. At the same time, business expectations for the year ahead weakened sharply and were the least upbeat since December 2008.

The headline IHS Markit/CIPS UK Construction Total Activity Index registered 45.0 in August, down slightly from 45.3 in July and below the 50.0 no-change threshold for the fourth consecutive month.

Civil engineering activity also dropped at a relatively sharp pace during August. In contrast, house building fell only slightly and the rate of decline was the least marked since the downturn began in June.

New orders received by construction companies have dropped in each month since April. Latest data signalled a sharp decline in new work, with the rate of contraction the fastest since March 2009. Softer demand for construction products and materials helped to alleviate pressure on supply chains, with delivery delays from vendors among the least widespread for three years. Meanwhile, input cost inflation moderated to its lowest since March 2016.

Construction companies indicated a slide in business optimism for the second month running in August, and the least positive since December 2008. Concerns about the business outlook were overwhelmingly attributed to domestic political uncertainty and a corresponding drop in spending.

Tim Moore, Economics Associate Director at IHS Markit, which compiles the survey 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 new work for over 10 years.

“Concerns about softening demand for new projects resulted in a fall in business optimism across the construction sector to its weakest since December 2008. This provides an early signal that UK construction companies are braced for a protracted slowdown as a lack of new work to replace completed contracts begins to bite over the next 12 months.”

Duncan Brock, Group Director at the Chartered Institute of Procurement & Supply added: “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.

“As Brexit creeps closer and confusion still reigns, this will undoubtedly heap more pressure on the UK Government to create much-needed clarity in the market. The commercial sector particularly has been devastated by reluctant clients fearful of taking a wrong turn in a confusing landscape and delaying project starts, resulting in the fastest drop in new orders since March 2009.

“The reality is, if a revival of confidence and a flood of new orders return to the construction sector in the coming weeks, much like a large tanker turning in a dock, there is little room for the sector to improve in the last quarter of the year. It’s likely September’s data will be even more discouraging.

About Fiona Russell-Horne

Group Managing Editor across the BMJ portfolio.

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