UK con­struc­tion sec­tor moves back into re­verse gear dur­ing Septem­ber

Financial Mirror (Cyprus) - - FRONT PAGE -

Septem­ber data re­vealed a dif­fi­cult month for the UK con­struc­tion sec­tor, as a sus­tained drop in new work led to the first re­duc­tion in over­all busi­ness ac­tiv­ity since Au­gust 2016. Sur­vey re­spon­dents at­trib­uted the drop in work­loads to frag­ile con­fi­dence and sub­dued risk ap­petite among clients, es­pe­cially in the com­mer­cial build­ing sec­tor.

The sea­son­ally ad­justed IHS Markit/CIPS UK Con­struc­tion Pur­chas­ing Managers’ In­dex (PMI) reg­is­tered 48.1 in Septem­ber, down from 51.1 in Au­gust and be­low the cru­cial 50.0 no-change thresh­old for the first time in 13 months. The lat­est read­ing sig­nalled the fastest de­cline in over­all con­struc­tion out­put since July 2016.

Lower vol­umes of con­struc­tion work re­flected marked falls in both com­mer­cial and civil en­gi­neer­ing ac­tiv­ity dur­ing Septem­ber. The re­duc­tion in civil en­gi­neer­ing work was the steep­est for al­most four-and-a-half years, which some firms linked to a lack of new in­fras­truc­ture projects to re­place com­pleted con­tracts.

The lat­est de­cline in work on com­mer­cial de­vel­op­ment projects was the sec­ond-sharpest since Fe­bru­ary 2013 (ex­ceeded only by the post-EU ref­er­en­dum dip seen last July). Sur­vey re­spon­dents widely com­mented on a head­wind from po­lit­i­cal and eco­nomic un­cer­tainty, along­side ex­tended lead times for bud­get ap­provals among clients.

House build­ing was the only broad area of con­struc­tion ac­tiv­ity to reg­is­ter an ex­pan­sion in Septem­ber. How­ever, growth mo­men­tum eased to a six-month low amid re­ports cit­ing wor­ries about less favourable mar­ket con­di­tions ahead.

New busi­ness vol­umes dropped for the third month run­ning in Septem­ber, thereby sug­gest­ing a con­tin­ued short­age of work to re­place com­pleted con­struc­tion projects. Aside from the down­turn seen around the EU ref­er­en­dum last year, the cur­rent pe­riod of de­cline is the long­est recorded since early-2013. More sub­dued de­mand led to an­other fall in sub-con­trac­tor us­age and a rel­a­tively weak rate of job cre­ation among con­struc­tion firms dur­ing Septem­ber.

In­put buy­ing de­creased for the first time in six months, largely in re­sponse to re­duced work­loads across the sec­tor. Lower de­mand for ma­te­ri­als helped to al­le­vi­ate some strain on sup­ply chains, as de­liv­ery times from ven­dors length­ened to the low­est ex­tent since Novem­ber 2016. Con­struc­tion com­pa­nies con­tin­ued to face head­winds from ris­ing in­put costs, with higher prices for im­ported ma­te­ri­als help­ing to drive up in­fla­tion­ary pres­sures to a seven-month high.

Frag­ile de­mand con­di­tions ap­peared to weigh on con­struc­tion firms’ ex­pec­ta­tions for growth in the next 12 months. The lat­est sur­vey in­di­cated that busi­ness op­ti­mism eased to its sec­ond-low­est since April 2013. A num­ber of firms cited con­cerns about UK busi­ness in­vest­ment prospects, linked to un­cer­tainty around the path to Brexit.

“A short­fall of new work to re­place com­pleted projects has started to weigh heav­ily on the UK con­struc­tion sec­tor. Aside from the soft patch linked to spend­ing de­lays around the EU ref­er­en­dum, con­struc­tion com­pa­nies have now ex­pe­ri­enced their long­est pe­riod of fall­ing work­loads since early-2013,” said Tim Moore, As­so­ciate Di­rec­tor at IHS Markit and au­thor of the Markit/CIPS Con­struc­tion PMI.

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

“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.

Moore con­cluded: “House build­ing slipped down a gear in Septem­ber, which high­lighted that frag­ile con­fi­dence has spread across all three key mar­ket seg­ments. Some firms sug­gested that the loss of mo­men­tum for res­i­den­tial con­struc­tion re­flected wor­ries about the out­look for ul­tra-low mort­gage rates and less up­beat de­mand ex­pec­ta­tions.”

“A dis­mal pic­ture of con­struc­tion emerged this month as the sec­tor showed signs of wors­en­ing busi­ness con­di­tions across the board. With the big­gest con­trac­tion in over­all ac­tiv­ity since July 2016, and a drop in new or­ders, op­ti­mism was in short sup­ply,” added Dun­can Brock, Di­rec­tor of Cus­tomer Re­la­tion­ships at the Char­tered In­sti­tute of Pro­cure­ment and Sup­ply (CIPS).

“Re­spon­dents pointed to ob­struc­tive eco­nomic con­di­tions and the Brexit blight of un­cer­tainty, freez­ing clients into in­de­ci­sion over new projects. Even hous­ing, the stal­wart of the con­struc­tion sec­tor stut­tered with a dwin­dling per­for­mance, but civil en­gi­neer­ing was the big­gest vic­tim fall­ing to its weak­est level for four and a half years.

“The con­ta­gion con­tin­ued all along the sup­ply chain as ma­te­rial short­ages placed a strain on de­liv­ery times and in­creased com­mod­ity prices were af­fected by the weak pound. De­spite a mar­ginal in­crease in em­ploy­ment fig­ures, this wasn’t enough to dis­pel the de­scend­ing au­tum­nal gloom where it is un­clear where any ma­jor shift in mo­men­tum for the sec­tor will come in the next few months.”

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