Business optimism eases to its lowest so far in 2017

June data revealed weaker growth momentum across the UK construction sector, with business activity, new work and employment all expanding at slower rates than in May.

Survey respondents commented on signs of renewed risk aversion among clients, reflecting concerns about the economic outlook and heightened political uncertainty. The latest survey also indicated that construction companies were the least optimistic about their near-term growth prospects since December 2016.         

At 54.8 in June, down from 56.0 in May, the seasonally adjusted IHS Markit/CIPS UK Construction Purchasing Managers’ Index (PMI) registered above the 50.0 no-change mark for the tenth month running. Although signalling a solid upturn in overall business activity, the rate of expansion eased from May’s 17-month peak. 

Residential building continued to outperform commercial work and civil engineering in June. Moreover, the latest rise in housing activity was still the second-fastest since December 2015.    

Reports from survey respondents suggested that a lack of new work to replace completed projects had weighed on construction growth in June. Latest data indicated that new order growth eased to its weakest since March. A number of firms cited delays in decision making among clients, partly linked to heightened economic uncertainty.

Mirroring the trend for new business, construction companies reported the slowest rise in employment numbers for three months in June. Some survey respondents noted that concerns about the business outlook had led to the non-replacement of voluntary leavers. Reflecting this, the index measuring construction firms’ expectations for growth over the next 12 months was the lowest so far in 2017.  

Meanwhile, demand for construction materials continued to rise at a solid pace in June, with the rate of expansion holding close to May’s 16-month peak. A sustained upturn in input buying placed pressure on stocks held by vendors and resulted in longer delivery times for construction materials. The latest deterioration in supplier performance was the second-sharpest since March 2015.

UK construction companies reported another steep increase in their average cost burdens in June. The overall rate of inflation rebounded since May and was the strongest for three months. Reports from survey respondents mainly commented on the weaker sterling exchange rate feeding through from manufacturers. Some firms also noted that a combination of resilient demand for construction materials and stretched supply had underpinned the latest round of price rises by vendors.