Outlook for construction output lowest since November 2012
UK construction output declined for the third month running in July, reflecting lower volumes of work across all three broad categories of activity
The latest IHS Markit/ CIPS UK Construction Total Activity Index also revealed a sharp drop in new order intakes, which survey respondents attributed to subdued economic conditions and domestic political uncertainty. Weaker demand contributed to a slide in business optimism towards the year-ahead outlook for construction output, with the degree of confidence the lowest since November 2012.
At 45.3 in July, the survey 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.
Commercial construction output was the worst-performing category in July, followed closely by civil engineering activity. Anecdotal evidence 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.
Housebuilding dropped 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.
July data 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.
Employment numbers were cut back in response to deteriorating order books, although the rate of job shedding was only modest and largely reflected the non-replacement of voluntary leavers. Sub-contractor usage meanwhile decreased for the sixth consecutive month.
Demand for construction products and materials 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.
Duncan Brock, group director at the Chartered Institute of Procurement & Supply, said: “The sector felt the pressure of challenging economic conditions and the impact of another disastrous drop in demand growth, as purchasing activity petered out and Brexit nibbled away at confidence and decision-making. Though the sector’s activity improved marginally on last month’s biggest fall in a decade, this third month of contraction in a row makes for gloomy reading.
“Moving into the second half of the year it will take the sector some time to dig its way out of this deep hole. As the autumn and the potential negative impacts of a no-deal exit from the EU threaten, any significant recovery is unlikely to be on the horizon until 2020. Construction optimism is at its lowest since November 2012, so there’s no time to lose in injecting some stability and certainty into the economy and Brexit plans before recovery of months turns into years.”