Construction output falls at the steepest rate since April 2009

There was a sharp loss of momentum for the UK construction sector, with business activity and incoming new work both falling at the fastest pace for just over 10 years, according to the latest IHS Markit/CIPS UK Construction Total Activity Index.

The slide in construction demand was mainly attributed by survey respondents to risk aversion among clients in response to heightened political and economic uncertainty.

The headline seasonally adjusted Index posted 43.1 in June, down sharply from 48.6 in May and below the 50.0 no-change mark for the fourth time in the past five months. Furthermore, the latest reading signalled the steepest reduction in overall construction output since April 2009.

Duncan Brock, group director at the Chartered Institute of Procurement and Supply, said: “Purchasing activity and new orders dropped like a stone in June as the UK construction sector experienced its worst month for a decade.

“This abrupt change in the sector’s ability to ride the highs and lows of political uncertainty shows the impact has finally taken its toll as new orders dried up and larger contracts were delayed again. The pain of Brexit indecision was felt across all three sub-sectors but the previously resilient housing sector suffered the fastest drop in three years which is frankly worrying news.”

The fall in house building was the largest reported for three years, which construction companies linked to weaker demand conditions and concerns about the outlook for residential sales.
Commercial work fell for the sixth consecutive month and remained the worst performing area of construction activity. The latest reduction in work on commercial building projects was the steepest since December 2009. Survey respondents often cited Brexit uncertainty and subsequent delays to project starts.

Civil engineering activity also declined at a sharp pace in June, with the rate of contraction the fastest since October 2009. Anecdotal evidence suggested that domestic political uncertainty, delays to new projects and longer wait times for infrastructure contract awards had all acted as a brake on business activity.

Total new work received by UK construction companies decreased for the third consecutive month in June. The latest survey indicated that the rate of decline accelerated to its sharpest since April 2009. Lower volumes of new business were primarily linked to a lack of tender opportunities as political uncertainty encouraged a wait-and-see approach to spending decisions. Some firms also commented that softer economic conditions had led to reduced client budgets.

Demand for construction staff was relatively resilient in June, with the latest survey pointing to only a marginal fall in workforce numbers.

“With the onslaught of indecision combined with a weakening global economy, this could easily turn into more months of contraction as future optimism remains subdued,” Duncan said.