June data revealed a sharp loss of momentum for the UK
construction sector, with business activity and incoming new work both falling
at the fastest pace for just over 10 years.
The slide in
construction demand was mainly attributed by survey respondents to risk
aversion among clients in response to heightened political and economic
uncertainty.
The headline
seasonally adjusted IHS Markit/CIPS UK Construction Total Activity Index posted
43.1 in June, down sharply from 48.6 in May and below the 50.0 no-change mark
for the fourth time in the past five months. Moreover, the latest reading
signalled the steepest reduction in overall construction output since April
2009.All three broad categories of activity recorded a decline in output during
June.
The fall in house
building was the largest reported for three years, which construction companies
linked to weaker demand conditions and concerns about the outlook for
residential sales. Commercial work fell for the sixth consecutive month and
remained the worst performing area of construction activity.
The latest
reduction in work on commercial building projects was the steepest since
December 2009. Survey respondents often cited Brexit uncertainty and subsequent
delays to project starts. Civil engineering activity also declined at a sharp
pace in June, with the rate of contraction the fastest since October 2009.
Anecdotal evidence suggested that domestic political uncertainty, delays to new
projects and longer wait times for infrastructure contract awards had all acted
as a brake on business activity. Total new work received by UK construction
companies decreased for the third consecutive month in June.
The latest survey
indicated that the rate of decline accelerated to its sharpest since April
2009. Lower volumes of new business were primarily linked to a lack of tender
opportunities as political uncertainty encouraged a wait-and-see approach to
spending decisions. Some firms also commented that softer economic conditions
had led to reduced client budgets. Demand for construction staff was relatively
resilient in June, with the latest survey pointing to only a marginal fall in
workforce numbers. Where a decline in employment was reported, this was often
linked to the non-replacement of voluntary leavers.
Some firms noted
that they had sought to retain staff in anticipation of a recovery in sales.
Forthcoming infrastructure projects were cited as a key source of optimism.
However, latest data indicated that overall business optimism towards the
outlook for construction work remained subdued, with confidence holding close
to May's seven-month low
Lower workloads led
to the largest drop in input buying since January 2010.
Supply
chain pressures nonetheless persisted in June, reflecting shortages of stock
among vendors. Longer wait times for plasterboard and insulation materials were
frequently reported. However, softer demand for construction inputs contributed
to the slowest overall rate of input cost
inflation since May 2016.
Tim Moore,
Associate Director at IHS Markit, which compiles the survey: “The latest survey
reveals weakness across the board for the UK construction sector, with house
building, commercial work and civil engineering activity all falling sharply in
June.
"Delays to new
projects in response to deepening political and economic uncertainty were the
main reasons cited by construction companies for the fastest drop in total
construction output since April 2009.
"While the
scale of the downturn is in no way comparable that seen during the global
financial crisis, the abrupt loss of momentum in 2019 has been the worst
experienced across the sector for a decade.
"Greater risk
aversion has now spread to the residential building sub-sector, as concerns
about the near-term demand outlook contributed to a reduction in housing
activity for the first time in 17 months. "Construction companies reported
a continued brake on commercial work from clients opting to postpone spending,
with decisions on new projects often pending greater clarity about the path to
Brexit.
"Latest data
meanwhile indicated another sharp fall in civil engineering, which also
reflected delayed projects and longer wait times for contract awards.
"Worrying
signals from the survey's forward-looking indicators make it almost impossible
to sugarcoat the Construction PMI data in June. In particular, new orders
dropped to the largest extent for just over 10 years, while demand for
construction products and materials fell at the sharpest pace since the start
of 2010.
"A continued
lack of new work to replace completed projects illustrates the degree of
urgency required from policymakers to help restore confidence and support the
long-term health of the construction supply chain."
