Construction output declines in December

December data pointed to another sharp reduction in construction output, with a downturn persisting across all three broad categories of activity, according to the IHS Markit/Cips UK Construction Total Activity Index.

Survey respondents attributed the latest drop in their workloads to political uncertainty and subdued client demand ahead of the general election.

At 44.4 in December, down from 45.3 in November, the index registered below the crucial 50.0 no-change value for the eighth consecutive month. The current period of falling business activity across the construction sector is the longest recorded by the survey for almost a decade.

Civil engineering was by far the worst-performing category of construction in December, with activity falling at the fastest pace since March 2009. Anecdotal evidence suggested that political indecision and delays with contract awards for new projects had led to falling business activity.

Latest data also revealed a sharp drop in commercial work, which was partly attributed to clients opting to postpone spending decisions ahead of the general election. Meanwhile, house building dropped for the seventh month running in December, but the rate of decline was only modest.

Construction companies recorded a marked reduction in new business volumes during December, although the pace of contraction remained less severe than the 10-year record seen in August. The latest survey also pointed to the softest decline in staffing numbers for four months. Where a drop in employment levels was reported, survey respondents often cited the non-replacement of voluntary leavers amid a lack of work to replace completed projects.

A reduced pipeline of incoming new business led to falling demand for construction products and materials at the end of 2019. A robust and accelerated decline in input buying across the construction sector helped to alleviate some supply chain bottlenecks. As a result, vendor lead times lengthened to the least marked extent since September 2010.

Sluggish demand for construction inputs acted as a brake on pricing among suppliers in December. The latest increase in overall purchasing costs was only modest and the weakest recorded by the survey for almost ten years. Survey respondents noted that higher fuel and energy costs were the main drivers of rising input prices.

In contrast to the subdued output trends reported during December, construction companies indicated that their optimism towards the year-ahead business outlook rebounded to a nine-month high. A number of firms suggested that greater clarity in relation to Brexit had the potential to boost order books in 2020.

Duncan Brock, group director at the Chartered Institute of Procurement and Supply, said: “Construction companies are still struggling to fill the skills gap left by the last recession and have had a bumpy ride since the referendum in 2016. It may take years to salvage the losses of the last three years, even if all obstacles are magically removed from the sector’s path to recovery.”