Construction activity falls to 11-month low
A slowdown in the commercial building market in July resulted in construction confidence falling to its lowest level since last August, according to the latest monthly survey of industry purchasing managers.
The IHS Markit/CIPS UK Construction Purchasing Managers’ Index (PMI) dropped from 54.8 in June to 51.9 in July, to signal the weakest construction performance since August 2016.
Lower levels of commercial construction were a key factor holding back overall business activity growth in July, according to the survey. Although only modest, the reduction in commercial activity was the fastest for 12 months. A number of survey respondents cited delays in decision making by clients, linked to worries about the economic outlook and heightened political uncertainty.
Residential building remains the strongest performing sector, although the latest rise was the slowest for three months. The only upturn in output growth was in the civil engineering sector.
Construction firms commented on greater reluctance to commit to new projects among clients in July. Weaker demand led to an overall reduction in new business volumes for the first time since the post-referendum rebound began in September 2016.
Deteriorating order books resulted in more cautious staff recruitment policies, as highlighted by a moderation in employment growth to its slowest for 11 months. Sub-contractor usage also decreased during the latest survey period.
July data suggested that UK construction companies responded to lower sales by tightening up purchasing activity at their business units. The latest increase in input buying was only marginal and the weakest since March. Delivery times for construction materials continued to lengthen, which survey respondents linked to low stocks and stretched capacity among suppliers. Meanwhile, input cost inflation remained elevated and close to the peaks seen at the start of 2017, which was partly linked to prices for imported items.
Tim Moore, associate director at IHS Markit and author of the IHS Markit/CIPS Construction PMI, said: “Worries about the economic outlook and heightened political uncertainty were key factors contributing to subdued demand.
“Construction firms reported that clients were more reluctant to spend and had opted to take longer in committing to new projects.”
Sarah McMonagle, director of external affairs at the Federation of Master Builders (FMB), said: “These figures represent the weakest monthly performance in the UK construction industry for almost one year. Construction companies are suffering from ever-increasing costs and this is starting to act as a drag on growth. More specifically, the increase in construction material prices and higher wages and salaries due to the construction skills shortages will no doubt have contributed to these disappointing results.
“The commercial sector in particular fell at its fastest pace for 12 months but we also saw a loss of pace among house builders. However, although the construction sector is growing at a slower pace, it is still growing and therefore there is no reason to panic.”