Moving back into reverse gear

The UK construction sector experienced a difficult September, as a sustained drop in new work led to the first reduction in overall business activity since August 2016.

IHS Markit/Cips UK Construction Purchasing Managers’ Index (PMI) revealed survey respondents attributed the drop in workloads to fragile confidence and subdued risk appetite among clients, especially in the commercial building sector.

The PMI registered 48.1 in September, down from 51.1 in August and below the crucial 50.0 no-change threshold for the first time in 13 months. The latest reading signalled the fastest decline in overall construction output since July 2016.

Lower volumes of construction work reflected marked falls in both commercial and civil engineering activity during September. The reduction in civil engineering work was the steepest for almost four-and-a-half years, which some firms linked to a lack of new infrastructure projects to replace completed contracts.

The latest decline in work on commercial development projects was the second-sharpest since February 2013 (exceeded only by the post-EU referendum dip seen last July). Survey respondents widely commented on a headwind from political and economic uncertainty, alongside extended lead times for budget approvals among clients.

House building was the only broad area of construction activity to register an expansion in September. However, growth momentum eased to a six-month low amid reports citing worries about less favourable market conditions ahead.

New business volumes dropped for the third month running in September, thereby suggesting a continued shortage of work to replace completed construction projects. Aside from the downturn seen around the EU referendum last year, the current period of decline is the longest recorded since early 2013.

More subdued demand led to another fall in sub-contractor usage and a relatively weak rate of job creation among construction firms during September.
Input buying decreased for the first time in six months, largely in response to reduced workloads across the sector. Lower demand for materials helped to alleviate some strain on supply chains, as delivery times from vendors lengthened to the lowest extent since November 2016.
Construction companies continued to face headwinds from rising input costs, with higher prices for imported materials helping to drive up inflationary pressures to a seven-month high.

The latest survey indicated that business optimism eased to its second-lowest since April 2013. A number of firms cited concerns about UK business investment prospects, linked to uncertainty around the path to Brexit.

Duncan Brock, director of customer relationships at the Chartered Institute of Procurement and Supply, said: “A dismal picture of construction emerged this month as the sector showed signs of worsening business conditions across the board. With the biggest contraction in overall activity since July 2016, and a drop in new orders, optimism was in short supply.”