Construction Industry Output And Confidence Falls Again

The construction industry continued contracting for the fifth month out of the last six as political uncertainty and weakened economy erode investor confidence.

According to data from the IHT Markit/CIPS UK Construction index, July’s construction figures of 45.3 slipped below the no change standard of 50 for the fifth time in six months.

Although July’s reading suggested a marginal upturn from June’s apocalyptic figures of 43.1, the index claimed that UK house building fell for the second month in a row. However, this decline was considered a lot more ‘modest’ than the steep fall in June. Sluggish residential transactions were attributed to the decline in this area of construction.

The report found orders for new construction work fell for the fourth consecutive month making this the most substantial period of decline since 2016. As a consequence, employment numbers started dwindling in July and the demand for materials also fell.

Confidence in the future 12 months, from construction companies, is now at its lowest levels since 2012 with Brexit concerns, the fear of a general election and delays in infrastructure projects plaguing the sector in July

Tim Moore, Economics Associate Director at IHS Markit, said: “UK construction output remains on a downward trajectory and another sharp drop in new orders has reduced the likelihood of a turnaround in the coming months.

“Total business activity declined at a softer pace than the ten-year record seen in June, but this should not detract attention from the challenges ahead for the construction sector. Customer demand has been squeezed on all sides in recent months, which has pushed down business expectations to the lowest since the second half of 2012.

“July data revealed declines in house building, commercial work and civil engineering, with all three areas suffering to some degree from domestic political uncertainty and delayed decision-making.

“Construction companies have started to respond to lower workloads by cutting back on input buying,  staffing numbers and sub-contractor usage. If the current speed of construction sector retrenchment is sustained, it will soon ripple through the supply chain and spillovers to other parts of the UK economy will quickly become apparent.”

Duncan Brock, Group Director at the Chartered Institute of Procurement & Supply, commented: “The sector felt the pressure of challenging economic conditions and the impact of another disastrous drop in demand growth, as purchasing activity petered out and Brexit nibbled away at confidence and decision-making. Though the sector’s activity improved marginally on last month’s biggest fall in a decade, this third month of contraction in a row makes for gloomy reading.

“Cost pressures continued in July as the weak pound and short supply pushed up the price of materials and made progress on building projects more difficult still.  In this turbulent month the impact was felt along all the supply chain with job seekers left out in the cold as employment opportunities dried up and hiring plans were frozen.

“Moving into the second half of the year it will take the sector some time to dig its way out of this deep hole. As the autumn and the potential negative impacts of a no-deal exit from the EU threaten, any significant recovery is unlikely to be on the horizon until 2020. Construction optimism is at its lowest since November 2012, so there’s no time to lose in injecting some stability and certainty into the economy and Brexit plans before a recovery of months turns into years.”

How worrying are these figures for the future completion of new build projects? What does a decline in construction output mean for conveyancers?

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