Property

UK construction sector stabilises in August

Rozi Jones
|
2nd September 2016
Construction 1

UK construction companies indicated a sustained reduction in business activity during August, but the pace of decline was only marginal and much softer than the seven-year record seen during July, according to IHS Markit data.

New order volumes also moved closer to stabilisation, with the latest reduction the least marked since May. This contributed to a renewed rise in staffing levels across the construction sector and a rebound in business expectations for the next 12 months. However, latest data indicated a further steep acceleration in input cost inflation.

Purchasing prices rose at the fastest pace for just over five years amid reports that exchange rate depreciation had acted as a catalyst for increased charges among suppliers of construction materials.

Sub-sector data pointed to much slower reductions in housing activity and commercial building than those recorded in July. In both cases, the rate of contraction in August was the slowest for three months.

However reports from survey respondents suggested that Brexit uncertainty continued to act as a brake on the construction sector during August, especially in terms of house building and commercial work.

Despite this, a number of firms noted that sales volumes had been more resilient than expected. Some panel members also commented on signs of a rebound in client confidence from the lows seen earlier this summer. Reflecting this, latest data highlighted that incoming new work decreased at the slowest pace since May.

Signs of a more stable trend for new business volumes resulted in a marginal expansion of staffing levels across the construction sector in August. However, sub-contractor usage continued to decrease, and rates charged by sub-contractors rose at the second-slowest pace since June 2013.

Looking ahead, construction firms pointed to a rebound in business confidence from July’s 39- month low. Although the degree of positive sentiment was the highest since May, it remained close to the weakest recorded over the past three years.

Tim Moore, Senior Economist at Markit and author of the Markit/CIPS Construction PMI, said: “The downturn in UK construction activity has eased considerably since July, primarily helped by a much slower decline in commercial building. Construction firms cited a nascent recovery in client confidence since the EU referendum result and a relatively steady flow of invitations to tender in August.

“However, the latest survey indicates only a partial move towards stabilisation, rather than a return to business as usual across the construction sector. There were still widespread reports that Brexit uncertainty had dampened demand and slowed progress on planned developments, especially in relation to large projects. As a result, total new order volumes continued to fall during August, which stands in contrast to the three-year run of sustained growth seen prior to May 2016.

“Despite another month of reduced output, the latest figures can be viewed as welcome news overall after a challenging summer for the construction sector. The move towards stabilisation chimes with the more upbeat UK manufacturing PMI data for August, and provides hope that the near-term fallout from Brexit uncertainty will prove less severe than feared.”

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