Growth slowdown across UK construction
March data revealed a slowdown in growth across the UK construction sector, led by a weaker rise in residential building activity, according to IHS Markit.
The latest survey also pointed to only a marginal increase in new work, which contributed to slower employment growth and a slight decline in input buying.
However, construction companies remain relatively upbeat about their near-term growth prospects, partly reflecting a stabilisation of client confidence from the post-referendum lows seen in 2016. Optimism regarding year-ahead business activity picked up in March to its second-highest since December 2015.
The seasonally adjusted Markit/CIPS UK Construction Purchasing Managers’ Index (PMI) dropped from 52.5 in February to 52.2 in March, to signal the joint-slowest upturn in overall construction output since the current period of expansion began in September 2016.
Softer growth primarily reflected a loss of momentum in housing activity, which offset a rebound in both commercial and civil engineering activity. The latest increase in work on civil engineering projects was the fastest so far in 2017 and the strongest of the three subcategories monitored by the survey in March.
Subdued new business growth persisted in March, with the rate of expansion unchanged from the four-month low seen in February. Construction companies noted that squeezed client budgets had acted as a brake on new business growth. There were also reports citing planning delays and greater cost consciousness among clients.
At the same time, survey respondents noted that reduced Brexit-related anxiety and the resilient economic backdrop had a positive impact on new invitations to tender. This helped underpin an improvement in business confidence regarding the growth outlook. Almost half of the survey panel expect a rise in business activity during the year ahead, against only 9% that forecast a decline.
Construction companies recorded a solid increase in employment numbers in March, although the pace of job creation eased to a three-month low. Meanwhile, sub-contractor usage dipped slightly since February, but construction firms continued to report a sharp drop in the availability of sub-contractors.
Input buying declined for only the second time since September 2016, which was mainly linked to subdued new business growth in March. Supplier performance nonetheless deteriorated at one of the fastest rates seen over the past two years, driven by low stocks among vendors.
Input cost inflation remained strong in March, linked to higher prices for imported materials and global commodity price rises. However, the overall rate of cost inflation eased further from the eight-and-half year peak seen in January.
Duncan Brock, director of customer relationships at the Chartered Institute of Procurement & Supply, said: “Where the housing sector acted as the main engine of growth over the last four years, this month it was slower and stuttering, while overall purchasing activity in the construction sector was disappointingly tame, shackled by a lack of new orders and rising costs.
“This downbeat effect took a small bite out of any strong rises in employment levels, as the increase in staff hiring was at a three-month low. But as the sector showed strong optimism for future business, concerns over skilled labour availability are likely to persist in coming months.”