UK construction activity saw only a “modest” improvement midway through the second quarter of the year, according to the latest Purchasing Managers’ Index (PMI) from the Chartered Institute of Procurement and Supply (CIPS).
The seasonably adjusted IHS Markit/CIPS UK CPI remained unchanged since April, sitting at 52.5. This, the report said, was indicative of a “moderate increase in total activity, albeit one that was subdued in the context of historical data”.
Optimism towards future growth slumped to a seven-month low in May which, according to the report, was linked to fears of political and economic uncertainty and an expected slowdown in the construction sector.
The report also showed that commercial activity growth accelerated to a three-month high in May. However, softer expansions in both residential and civil engineering activity were recorded. New order books also contracted for the fourth time in the past five months.
Respondents cited “political and economic uncertainty, subdued retail sector conditions and fragile business confidence” as key causes of a weaker demand for construction projects. Job creation softened to a four-month low in the latest survey period while purchasing costs for construction firms rose sharply, the report said.
Sam Teague, economist at IHS Markit and author of the IHS Markit/CIPS Construction PMI commented, “The May PMI data signalled an unchanged pace of activity growth across the UK’s construction sector since April’s somewhat underwhelming rebound, yet nevertheless indicating a recovery in the second quarter and the contraction seen at the start of the year.
“However, activity in May was once again buoyed by some firms catching up from disruptions caused by the unusually poor weather conditions in March, a renewed drop in new work hinted that the recovery could prove short-lived.”
He continued, “Inflows of new business slipped back into decline, signalling the resumption of the downward trend in demand seen during the opening quarter. Companies frequently noted that Brexit uncertainty and fragile business confidence led clients to delay building decisions in May.
“With new order books deteriorating and cost pressures picking up, it’s not surprising to see construction firms taking a dimmer view of prospects and pulling back on hiring, all of which makes for a shaky looking outlook.”
Duncan Brock, group director at CIPS said, “The two millstones of uncertainty and weak economic growth gave the sector plenty to worry about this month, and whilst activity still grew, the lowest business confidence in seven months suggests the subdued pipeline of new work is having an effect. With a decline in new orders for a fourth time in five months, it was client hesitation and consumer diffidence towards spending that had construction activity stuttering.
“Higher prices for fuel, raw material shortages, higher labour costs combined with slow delivery times were further obstacles to growth as firms nervously assessed their workforce for much-needed talent and sub-contractors could name their price.
“However, it’s encouraging to see the housing sector put in a strong performance for a second month running, after stumbling at the beginning of the year, and with only small improvements in the other sectors, residential building is keeping construction’s head above water.
“It’s likely that the construction sector’s performance will be a slow and steady crawl through the second quarter, as the spectre of Brexit continues to dominate, and the double pincer movement of few orders, and higher costs, could see the sector stutter further.”
Mark Robinson, chief executive of Scape Group added, “Although it is extremely positive to see that housebuilding activity remained buoyant in May as it continues to rebound from the heavy snow in March, it is disappointing to see overall construction new orders and outlook decline.
“The industry is suffering from ongoing political uncertainty, despite the clear long-term requirement for infrastructure investment. The expanding UK population is placing considerable pressure on our public services, and a lack of proper upkeep and investment will put a strain on local economies, as evidenced by Northern Rail over the past week. Spend on improved connectivity will unlock huge growth potential for our regions and for the UK economy as a whole.
“The short supply of skilled labour and the cost implications of this remains a barrier to the construction sector. The Government must address the plummeting apprenticeship starts, and we need to think more creatively about how to incorporate apprentices into staffing structures, ensuring maximum benefit for the individuals and employers.”