Sharpest decline in new work since March 2009

A loss of momentum in the UK construction sector has been reported, led by the sharpest reduction in new work since March 2009.

Business activity meanwhile declined for the fourth consecutive month and at a slightly steeper rate than in July. 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, construction firms indicated that their business expectations for the year ahead weakened sharply since July and were the least upbeat since December 2008.

The headline seasonally adjusted 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. Lower volumes of construction output were attributed to worsening order books and a lack of new projects to replace completed contracts.

All three broad categories of construction work decreased in August, led by commercial building. Survey respondents continued to note that Brexit-related uncertainty had encouraged risk aversion and tighter budget setting among clients. 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. Anecdotal evidence suggested that weak demand conditions had led to a lack of tender opportunities and strong competition for new work, particularly in the commercial sub-sector.

In response to the report, the Federation of Master Builders (FMB) said the government must bring an end to the threat of ‘no deal’ and give clarity to UK businesses by securing a new deal with the EU.

“A sustained decline in construction output risks small firms leaving construction altogether, as they struggle to absorb higher costs in an industry notorious for tight margins,” Brian Berry, chief executive of the FMB, said.“If we want local builders to deliver the high-quality homes our country needs, to upgrade people’s homes to modern standards and to form the supply chain for key national infrastructure projects that are essential to helping our economy move forward, then we certainly can’t afford for building companies to go to the wall due to uncertainty.”

Brian continued: “Research conducted by the FMB in July found that more than half of small construction companies believe that leaving the EU without a deal would cause material prices to sky-rocket, and just under a third believe it would lead to lower workloads.

“Construction is like a mirror for the wider economy, as it’s highly sensitive to market confidence. What we’re looking at currently is highly concerning. The government must negotiate a deal that parliament can pass in order to avoid a recession.”