Weakest upturn in output for 12 months

August survey data indicated that the UK construction sector continued to experience a slowdown this summer. Reduced levels of commercial work were a key source of weakness, which offset robust growth in residential building.

There were also signs of a sustained soft patch ahead, with new business volumes falling for the second month running. Survey respondents linked subdued demand to reduced business investment and heightened economic uncertainty.

As a result, construction firms exerted greater caution in terms of their staff hiring, with employment numbers rising at the slowest pace since July 2016.

At 51.1 in August, the seasonally adjusted IHS Markit/Cips UK Construction Purchasing Managers’ Index (PMI) remained above the 50.0 no-change threshold for the 12th month running. However, the latest reading was down from 51.9 in July and pointed to the weakest overall UK construction performance since August 2016. A key reason for the slowdown was a lack of new orders to replace completed projects, according the survey respondents.

Residential building was the only area to buck the overall trend in August, with housing activity rising at a robust and accelerated pace since the previous month. Meanwhile, civil engineering activity was close to stagnation and commercial work dropped at the fastest pace since July 2016.

Reports from survey respondents widely suggested that concerns about the UK economic outlook had weighed on the commercial development sector, with clients opting to delay spending decisions and, in some cases, scale back planned projects.

Total new order volumes dropped for the second month running in August, although the rate of contraction was only marginal and slower than seen in July. Survey respondents continued to cite reluctance to commit to new construction projects, linked to general economic uncertainty and less favourable market conditions.

On a more positive note, cost pressures were the weakest since September 2016. Survey respondents noted that exchange rate depreciation continued to drive up prices for construction materials, but some commented on successful negotiations with suppliers against a backdrop of softer market conditions.