Brexit squeeze continues to take its toll on UK construction sector

Building activity in Q3 2019 fell at the second-fastest rate since April 2009, as the UK construction sector remains stuck in a downturn, according to the latest Construction PMI figures

According to Construction PMI figures, a historically steep drop in new orders was also registered, while firms scaled back employment at the fastest rate since the end of 2010 due to unfavourable demand, client hesitancy and low confidence.

The headline seasonally adjusted IHS Markit/CIPS UK Construction Total Activity Index posted 43.3 in September, down from 45 recorded in August, signalling a more severe downturn in building activity across the UK.

The Construction PMI deterioration was the second-strongest since April 2009 and broad-based across all three broad categories of construction work.

As has been the case since March, commercial activity was the worst-performing segment. Here, the contraction gathered pace and was marked overall.

Civil engineering activity also dropped at a similarly sharp rate that was the fastest in close to a decade. A fourth successive monthly decrease in residential building was also signalled.

Latest survey data highlighted further demand weakness in the UK construction sector. Having fallen at the steepest rate since March 2009 last month, there was little sign of any recovery in September as new work inflows dropped at similarly substantial pace. Panellists attributed the marked slowdown to Brexit uncertainty and the resulting hesitancy caused among clients.

The strong dip in sales coincided with a further tapering of purchasing activity by UK construction companies in September. Buying levels declined at the joint-fastest rate since January 2010 due to lower operational requirements and increased efforts to contain costs.

Despite this, input prices continued to rise at a strong rate during September. The rise in costs was partly linked to greater fuel expenses and higher supplier charges for certain raw materials. However, the rate of inflation eased to a three and-a-half-year low in line with deteriorated input demand.

Looking ahead, UK construction firms were mildly optimistic that output volumes would pick up over the coming 12 months, although the level of business confidence was weak by historical standards. Competitive pressures, Brexit uncertainty and concerns towards the economy led to a subdued year-ahead outlook.

Following the release of today’s (2 October) Construction PMI figures, Phil Harris, director at BLP Insurance, commented: “With figures showing little forward momentum after a fifth consecutive month of industry contraction, the Brexit squeeze continues to take its toll.

“The summer malaise has endured into the autumn as major projects continue to be hit by delayed starts, refinancing and tweaks in planning. After an injection of infrastructural promises following the change of government, inertia has crept back in and progress is back on ice.

“We mustn’t lose sight that the UK construction sector is at its core robust and built on solid foundations. The industry is poised and elastic, ready to snap back into action but waiting for the green light from government. Whitehall and market leaders need to set the tone and lead by example.

“If PM Boris Johnson can carve out the legislative space to make good on the flurry of infrastructural commitments, this could provide the vital dose of confidence needed to kick-start growth. HS2 continues to serve as a litmus test of what could be. If the promised review results in cancellation then the shockwaves are likely to hurt both the residential market and general sentiment.

“At the same time, the established players can share the burden by pushing ahead on new projects and granting assurance to the wider sector that not all is doom and gloom. While losses from Kier last month will stir memories of Carillion, its situation is far less tenuous and no reason for the market to stay bogged down in caution.”

Nationwide Sureties blog in association with Engage.


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