Fall in Construction Output Smallest Since May

JANUARY’S FALL IN CONSTRUCTION output was the smallest since May 2019, with new orders close to stabilising the sector according to the latest IHS Markit/CIPS UK Construction PMI figures.

The headline seasonally adjusted IHS Markit/CIPS UK Construction Total Activity Index jumped from 44.4 in December to 48.4 in January. The latest reading was still below the 50.0 no-change threshold, but shows the slowest fall in overall construction output for eight months.

Survey respondents widely commented on a boost to client demand from receding political uncertainty, with firms noting that clients’ willingness to spend had picked up after the general election, which should translate into rising workloads over the course of 2020.

As a consequence, construction companies are now the most optimistic about their growth prospects since April 2018.

House building

As with previous months, house building was the best-performing part of the sector, with only a slight decline in January from December, following the wider trend with the smallest drop in output since May

Residential has benefitted most from greater clarity in relation to Brexit following the general election, which has had a positive effect on demand according to those responding to the survey.

The worst performing part of the sector was civil engineering, with firms often citing a lack of tender opportunities to help replace completed infrastructure contracts.

Activity in commercial also decreased, but the rate of contraction was much weaker than in December and the softest since the start of 2019.

More political certainty

A number of survey respondents noted that reduced domestic political uncertainty had the potential to unlock new projects and provide an additional boost to client spending.

Tim Moore, Economics Associate Director at IHS Markit, which compiles the survey, said, “Despite concerns about prospects for work on infrastructure projects, latest data revealed a strong rebound in business optimism across the construction sector as a whole in January.

“The degree of positivity reached its highest level since April 2018, driven by hopes that improving confidence among clients will continue to translate into new contract awards over the course of 2020.”

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

Duncan Brock, Group Director at the Chartered Institute of Procurement & Supply said: “Job losses are still in evidence overall and with an increase in sub-contractor use, it appears the sector is looking for short-term fixes to manage current workloads.

“Construction firms are not yet ready to scale up plans to increase workforces in the coming months without a stronger economic and political recovery clearly in sight.

“So, though this rebound is a welcome sign, as with all sudden improvements, the danger remains the sector could easily recoil and shrink again.”

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