Slowdown continues as temperatures drop

The latest seasonally adjusted data from IHS Markit/CIPS has been released showing activity in the construction sector continuing its slowdown.

With another recorded drop in business activity in November, the industry will be relieved that the latest figures show that the pace of decline is slowing. The latest data shows the slowest rate of decline since July. The headline seasonally adjusted IHS Markit/CIPS UK Construction Total Activity Index rose to 45.3 in November, from 44.2 in October, still way below the 50.00 growth marker.

The latest figures show new work continued to fall sharply, with responses citing continued domestic political uncertainty leading to indecision amongst clients, and a lack of new work replacing completed contracts. Survey respondents also suggested that unusually wet weather in November had also weighed on output.

All three broad areas of construction work recorded a fall in output during November, with civil engineering the worst performing category, followed by commercial building. Meanwhile, a much slower decline in housing activity helped to moderate the overall drop in UK construction output signalled by the survey in November.

The latest data shows that lower sales volumes have now been recorded for eight consecutive months, which is the longest phase of decline since 2012-13. Survey respondents commented on subdued client confidence and ongoing hesitancy to commit to new projects, largely in response to domestic political uncertainty.

Sustained declines were noted in staffing, with a number of firms noting that softer demand had prompted cost-cutting efforts and led to the non-replacement of voluntary leavers. Weaker demand for construction products and materials allowed suppliers to catch up on their workloads in November. As a result, vendor lead-times lengthened to the smallest extent since September 2010.

Looking ahead to 2020, construction companies report cautious prospects for growth. Business optimism has struggled throughout the year and is still much weaker than its long-run average. Reports from survey respondents suggested that this largely reflected concerns about the domestic economic outlook and worries that political uncertainty will continue to hold back client confidence.

Tim Moore, Economics Associate Director at IHS Markit, which compiles the survey, commented: “UK construction output fell again in November as Brexit uncertainty and the forthcoming General Election continued to send a chill breeze across the sector. The speed of the downturn in construction work eased a little since October, but the survey continues to signal a notable drop-off in business conditions compared with the first half of 2019.

“House building has been the most resilient category of construction output in 2019. However, it remains a concern that overall volumes of residential building work have dropped in each month since June, which is the longest phase of decline since the start of 2013.

“Greater spending on transportation and energy projects had been expected to help boost infrastructure work this year and next, but survey respondents indicated a sustained soft patch for overall civil engineering activity in November. Some construction companies reaffirmed their concern about the delivery of road and rail projects, with delays to contract awards acting as an additional headwind to growth projections for 2020.”

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