Sustained fall in commercial work weighs on construction sector during March

The recent soft patch for UK construction output continued during March; another fall in commercial work and civil engineering activity more than offset a modest upturn in residential building, according to the IHS Markit/Cips UK Construction Total Activity Index.

New business and employment numbers increased only slightly at the end of the first quarter, reflecting subdued underlying demand and delays to decision-making among clients.

In response, the Federation of Master Builders (FMB), said the government and parliament must break the Brexit deadlock to take the pressure off the industry, while doing more to attract and retain skilled labour.

Adjusted for seasonal influences, the index posted 49.7, up fractionally from 49.5 in February but still below the 50.0 no-change threshold. The sustained decline in total construction activity represented the first back-to-back fall in output levels since August 2016, although the rate of decline remained only marginal in March.

Commercial construction was the worst performing area during the latest survey period, with business activity dropping to the greatest extent since March 2018. There were widespread reports that Brexit uncertainty and concerns about the domestic economic outlook had led to risk aversion among clients. Civil engineering activity also fell in March, although the rate of decline eased since February.

Residential building bucked the downward trend seen across the wider construction sector in March. The latest upturn in housing activity was only modest, but still the strongest seen so far in 2019.

March data revealed a marginal increase in new work received by UK construction companies, with the rate of expansion remaining subdued in comparison to the long-run survey average. Survey respondents commented on intense competition for new work and a reluctance among clients to commit to major spending decisions in March. Mirroring the trend for new orders, latest data also highlighted only a modest rise in staffing levels at UK construction companies.

Input buying rebounded slightly in March, followed a decline during the previous survey period. Some firms commented on stock building efforts as part of their Brexit preparations, which helped to boost purchasing activity. Meanwhile, suppliers’ delivery times lengthened markedly in March, which survey respondents attributed to low stocks and stretched capacity among vendors.

Average cost burdens increased at a sharp and accelerated pace during March. The rate of input price inflation was the fastest since November 2018. Higher raw material costs were attributed to the weak sterling exchange rate and, in some cases, shortages of available items among regular suppliers.

Meanwhile, business optimism edged up from the four-month low seen during February. However, the degree of positivity remained much weaker than the long-term survey average. A number of construction companies noted that economic and political uncertainty had weighed on business expectations for the next 12 months.

Duncan Brock, group director at the Chartered Institute of Procurement and Supply, said: “Given the lack of warehousing space in the UK, and the difficulties of storing bulky items, it is evident the sector has pressed the panic button in its attempt to keep projects moving during the political impasse.

“It is unlikely that next month will bring about any positive news given the challenges of a weaker UK economy, volatile pound and intense competition for new orders, as Brexit continues to cast a long shadow over the sector’s future.”

Sarah McMonagle, director of communications at the FMB, said: “Brexit uncertainty and the construction skills shortage have created a perfect storm in our industry. Around 9% of construction workers in the UK are from EU countries, but we know from speaking to small construction employers that many of these skilled workers are starting to return, whether that’s because of strengthening economies elsewhere, or that they simply don’t feel welcome anymore.

“This is compounding an already severe construction skills shortage, and I’m worried that the government’s post-Brexit immigration system will make it even worse. For example, the system will not allow Level 2 tradespeople to live and work in the UK for more than 12 months at a time. At the same time, the government’s figures last week show that the number of Level 2 apprenticeship starts among our domestic workforce is dropping.

“It’s quite simply not possible to build the homes and infrastructure we need without bricklayers, carpenters and plasterers. The government and industry must work together to attract more people into the industry, by offering them high quality training with clear career pathways for progression but in the meantime we need sustained access to tradespeople of all skill levels for the industry to continue being open for business.”