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Construction activity hits reverse

The latest IHS Markit/CIPS UK Construction PMI statistics have been released, showing difficult times for the sector.

The latest survey indicated that business optimism eased to its second-lowest since April 2013, with numerous firms citing concerns about UK business investment prospects.

Business activity in construction industry has fallen for the first time in 13 months, following sustained drops in new work. Survey respondents attributed the drop in workloads to fragile confidence and subdued risk appetite among clients, especially in the commercial building sector. The latest statistics show the sharpest drop is in the civil engineering sector.

From the data collected between September 12-28, the index now registers at 48.1, down from 51.1 August, the first time the index has fallen below the crucial 50.0 threshold since August 2016.

The latest statistics also show that this sharp drop is the fastest decline in output since July 2016.

Respondents have cited marked falls in the commercial and civil sectors. The biggest reduction has been seen in civil engineering works, at its lowest figures for over four years. Respondents looked at the lack of new infrastructure projects underway to replace those that have recently completed.

Lack of commercial work is also affecting the sector, with recent figures only exceeded by the post-EU referendum dip, equalling the drop in work seen in February 2013.

The political environment is at the top of everyone’s minds when discussing the reasons for the decline, with economic uncertainty creating extended lead times and budget approvals. Growth has eased to a six-month low, with companies concerned about market conditions in the future.

Housing was the bright spot within the figures, and the UK government will be pleased its house building strategy is beginning to bare fruits, with construction activity creating an expansion in September.

New business volumes have dropped once again, the third month in a row, suggesting that the downturn will continue with no new work replacing completed contracts.

With activity slowing, demand for subcontractors has also fallen, and job creation within the sector also slowed.

Demand for materials and products also decreased, the first time in six months, due to the reduced workloads across the sector. This lower demand allowed vendors to catch up on delivery times, however, rising input costs and increased prices for imported materials will drive up inflationary pressures to a seven-month high.

The current period of decline is the longest recorded since early 2013, apart from the period following the EU referendum.

Tim Moore, Associate Director at IHS Markit and author of the IHS Markit/CIPS Construction PMI® : “A shortfall of new work to replace completed projects has started to weigh heavily on the UK construction sector.

“Fragile client confidence and reduced tender opportunities meant that growth expectations across the UK construction sector are also among the weakest for four-and-a-half years. At the same time, cost pressures have intensified, driven by supply bottlenecks and rising prices for imported materials.

“Commercial development has been the worst performing category in recent months. Construction firms attributed falling volumes of commercial work to subdued business investment and reduced risk appetite among clients, linked to heightened economic and political uncertainty.

“Civil engineering work decreased at its fastest pace since April 2013, which prompted concerns from survey respondents about a near-term lack of new infrastructure projects.”

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