UK Construction Output Declines Again in July

UK CONSTRUCTION sector output declined for the third month running in July, reflecting lower volumes of work across all three broad categories of activity, according to the latest IHS Markit/CIPS UK Construction PMI figures.

The latest survey also revealed a sharp drop in new order intakes, which survey respondents mainly attributed to subdued economic conditions and domestic political uncertainty. According to IHS Markit/CIPS weaker demand contributed to a slide in business optimism towards the year-ahead outlook for construction activity, with the degree of confidence the lowest since November 2012.

At 45.3 in July, the headline seasonally adjusted Construction Total Activity Index posted below the 50.0 no-change value for the fifth time in the past six months. The latest reading was up from June’s ten-year low of 43.1 but still signalled a marked downturn in total construction activity.

The report claimed commercial construction was the worst performing category in July, followed closely by civil engineering activity. Anecdotal evidence collected suggested that risk aversion among clients in response to Brexit uncertainty continued to hold back work on commercial projects. At the same time, some survey respondents noted that delays to contract awards for infrastructure work had acted as a headwind to civil engineering activity.

House building decline
According to the figures, house building fell for the second month in a row during July, but the rate of decline was only modest and eased from the three-year record seen in June. Reports from construction companies suggested that sluggish housing market conditions had a negative influence on residential work during the latest survey period.

July data also pointed to a downturn in total order books across the construction sector for the fourth successive month, which is the longest continuous period of decline since 2016. Lower volumes of new business were often linked to a lack of tender opportunities amid weaker domestic economic conditions and ongoing political uncertainty.

Figures also revealed that demand for construction products and materials has continued to soften, as signalled by a solid drop in purchasing activity during July.

Construction companies meanwhile reported a sharp drop in their confidence regarding the year-ahead outlook for business activity. The latest reading was the lowest since November 2012. Survey respondents often cited Brexit uncertainty, the prospect of a General Election and delays to infrastructure work.

Commenting on the figures, Phil Harris, Director at BLP Insurance said: “There is no silver bullet for the construction sector’s current woes, and whether we’re really ripe for a Boris bounce remains to be seen. The industry needs clear and decisive progress on major infrastructure projects to drive growth, not empty and populist vanity projects for which Johnson was renowned for during his tenure as mayor of London. Many in the sector will be viewing his promised review of HS2 as a litmus test for his intentions. Meanwhile, little about the UK’s circumstances has changed when it comes to Brexit, providing no respite on whether the PM’s spending plans will stand up to scrutiny.

“Outside of the Boris bubble, new housing minister, Esther McVey also joined a long line of predecessors this month, signalling yet another change of emphasis towards pushing homeownership. Marking the ninth housing minister in just nine years, the construction industry is crying out for a torchbearer to provide the stability to navigate the gloomy Brexit impasse.

“Nonetheless, fundamentals continue to remain strong, and it was encouraging to see a glimpse of optimism with the value of June construction contracts up 5.5% on the previous month*. With the 31 October deadline approaching rapidly, it’s vital that the government provides some confidence, clarity and stimulus for the construction sector.”

The full report can be downloaded here.

 

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