Slower rise in commercial work weighs on construction growth at the end of 2018
UK construction firms indicated a disappointing end to 2018 as business activity growth eased to a three-month low and new orders expanded at a relatively subdued pace. According to the IHS Markit/CIPS UK Construction Total Activity Index.
The main bright spot was a sustained rebound in civil engineering activity, which rose at the fastest pace since May 2017.
Business optimism also picked up in December; the degree of confidence was the highest since last April and well above the near six-year low seen in October. Survey respondents cited hopes of a boost to growth from work on big-ticket transport and energy infrastructure projects in 2019.
At 52.8 in December, down from 53.4 in November, the headline seasonally adjusted Index posted above the crucial 50.0 no-change value for the ninth consecutive month. However, the latest reading signalled only a modest rate of expansion that was the slowest seen since September.
Anecdotal evidence suggested that subdued demand conditions were the main factor behind softer output growth in December. There were also some reports that unusually wet weather had acted as a brake on construction work.
The slowdown in construction growth largely reflected softer rises in commercial and housing activity during December. Commercial building was the worst performing category, with activity expanding at the slowest rate since last May.
Total new business volumes picked up for the seventh successive month, but the rate of expansion eased since November and remained only modest. A number of construction companies noted that heightened political uncertainty had encouraged delays to spending decisions among clients, especially in relation to commercial development projects.
A solid rise in employment numbers was recorded across the construction sector in December. However, the rate of job creation eased from November’s near three-year peak.
Some firms noted that efforts to reduce costs had led to the non-replacement of voluntary leavers at the end of the year. Sub-contractor usage meanwhile picked up, with the rate of expansion the strongest since December 2015.
There were some positive signs for construction supply chains, with delivery times for materials lengthening to the least marked extent for over two years. Moreover, input cost inflation was the second-lowest since July 2016, despite ongoing reports that the weak pound had pushed up prices for imported items.