Construction Output Falls Again in December

OUTPUT FOR UK CONSTRUCTION companies fell again in December for the eighth month in a row, the longest continuous fall recorded by the IHS Markit survey in almost a decade.

The headline seasonally adjusted IHS Markit/CIPS UK Construction Total Activity Index registered below the 50.0 no-change value at 44.4 in December, down from 45.3 in November.

The downturn affected housing, commercial and civil engineering sectors, with the latter being the worst performing of the three.

Companies also reported a marked reduction in new business volumes during December, although the pace of contraction remained less severe than August’s ten-year record.

The decline has also led to falling demand for construction products and materials.

Election boost for optimism

One reason for the broad drop in demand brought up by respondents was political indecision, with clients postponing spending decisions ahead of the general election.

Following the election, optimism for the year-ahead business outlook rebounded to a nine-month high with a number of firms suggested that greater clarity in relation to Brexit had the potential to boost order books in 2020.

Tim Moore, Economics Associate Director at IHS Markit, which compiles the survey, said, “December data suggested that the UK construction sector limped through the final quarter of 2019, with output falling in all three major categories of work. Brexit uncertainty and spending delays ahead of the General Election were once again the most commonly cited factors highlighted by firms experiencing a drop in construction activity.

“Civil engineering saw its sharpest decline for more than ten years and remained the worst-performing area of construction work, followed by commercial development. House building has been the most resilient category in recent months, but still declined overall during December.

“The forward-looking survey indicators provide some hope that the construction sector malaise will begin to recede in the coming months. Latest data indicated that the downturn in order books remains much less severe than the low point seen last August, which has already helped to bring employment numbers closer to stabilisation.

“Moreover, construction companies signalled that business optimism has recovered to its strongest for nine months. Survey respondents cited confidence that a more predictable domestic political landscape and clarity on Brexit could deliver a much-needed boost to clients’ willingness-to-spend in 2020.”

Drop in staff numbers

The latest survey also pointed to a further decline in staffing numbers, although the decline was the smallest in four months. Where a drop in employment was reported, people responding to the survey often put it down to not replacing voluntary leavers amid a lack of work following on from completed projects.

Duncan Brock, Group Director at the Chartered Institute of Procurement & Supply

Duncan Brock, Group Director at the Chartered Institute of Procurement & Supply, said, “The construction sector crumbled again in December under the weight of Brexit and political uncertainty as pipelines of work continued to worsen and new orders dropped for the ninth consecutive month.

“The civil engineering sector was the biggest victim of this new wave of decline registering its sharpest fall since March 2009.

“The relatively resilient residential sector also continued its downward spiral although at a slower rate compared to the last six months offering some small moderation in the face of reduced overall activity.

“As the General Election drew near, construction firms saw a spike in confidence believing indecision and political deadlock would shortly come to an end. However, the embedded frailties in the sector are laid out for all to see.

“Construction companies are still struggling to fill the skills gap left by the last recession and have had a bumpy ride since the referendum in 2016. It may take years to salvage the losses of the last three years, even if all obstacles are magically removed from the sector’s path to recovery. Whilst suppliers’ delivery times are on the verge of improving and input price inflation slowed to its lowest level since 2010, this will be cold comfort as the sector continues with one of its worst overall performances in the last ten years.”

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