Construction remains in doldrums, according to latest PMI figures

Ongoing political and Brexit uncertainty saw output fall in all three broad categories of UK construction during November, according to the latest IHS Markit/CIPS UK Construction survey.

The monthly survey found that:

• Output fell in all three broad categories of construction;
• There was a sharp drop in new work;
• Staffing levels decreased for the eighth month in a row.

Although UK construction companies recorded another drop in business activity during November, the pace of decline moderated to its slowest since July. However, new work continued to fall sharply amid reports that domestic political uncertainty had led to indecision among clients.

The headline seasonally adjusted IHS Markit/CIPS UK Construction Total Activity Index rose to 45.3 in November, from 44.2 in October, to signal the slowest drop in overall construction output for four months. 

All three broad areas of construction work recorded a fall in output during November, with civil engineering the worst performing category, followed by commercial building.

Meanwhile, a much slower decline in housing activity helped to moderate the overall drop in UK construction output signalled by the survey in November.

Latest data pointed to another sharp reduction in new work received across the construction sector. Lower sales volumes have now been recorded for eight consecutive months, which is the longest phase of decline since 2012-13. Survey respondents commented on subdued client confidence and ongoing hesitancy to commit to new projects, largely in response to domestic political uncertainty.

Construction companies reported a sustained decline in their staffing numbers during November. A number of firms noted that softer demand had prompted cost-cutting efforts and led to the non-replacement of voluntary leavers.

Looking ahead, construction companies remain relatively cautious about their prospects for growth over the course of 2020. The degree of business optimism was little-changed since October and still much weaker than its long-run average. Reports from survey respondents suggested that this largely reflected concerns about the domestic economic outlook and worries that political uncertainty will continue to hold back client confidence.

Tim Moore, economics associate director at IHS Markit, said “UK construction output fell again in November as Brexit uncertainty and the forthcoming general election continued to send a chill breeze across the sector. The speed of the downturn in construction work eased a little since October, but the survey continues to signal a notable drop-off in business conditions compared with the first half of 2019.

"Greater spending on transportation and energy projects had been expected to help boost infrastructure work this year and next, but survey respondents indicated a sustained soft patch for overall civil engineering activity in November. Some construction companies reaffirmed their concern about the delivery of road and rail projects, with delays to contract awards acting as an additional headwind to growth projections for 2020."

Duncan Brock, group director at the Chartered Institute of Procurement & Supply, said: "Construction firms have not seen dwindling new orders for this length of time since 2013, as clients continued to defer spending large and small, citing political indecision as the cause of their non-committal. The sector’s downhill course, even with a slight uplift in the figures this month, looks set and there’s no sign construction can dig itself out just yet."

Mark Robinson, Scape Group chief executive, said: “The strength of construction activity is a vital indicator for where the country is heading, and today’s data once again reveals that we are falling short. New roads, homes, hospitals and schools, are all crucial for a stronger UK PLC, but delays to contract awards as well as planned projects are stopping us from moving forward.

“Businesses and individuals must not decide the fate of the upcoming election on Brexit alone. Areas of policy which have largely been ignored for the past three years must be brought back into debate. The next government must be more than a one-trick pony and has to be willing to show the industry that it is ready to build again. Not only by committing to infrastructure spend, but also by ensuring that we have the manpower to deliver.”

Max Jones, relationship director in Lloyds Bank infrastructure and construction team, looked beyond the current Brexit and political uncertainty affecting the sector, and claimed that other headwinds including currency risks, sustainability, and potential labour shortages are now getting the attention of contractors.

He said: “An emerging, overwhelmingly progressive trend in the sector is sustainability. Increasingly, contractors are seeking funding with sustainable clauses, including green commitments but also discounts secured if they agree to pay the Living Wage or create a minimum number of apprenticeships. And while infrastructure investment continues to be a major theme in the wider world, until contracts are signed and shovels hit the ground, contractors will be cautious about the potential positive impact on their order books.”