Declines in UK Construction Worrying Reading For Future PM

Construction in the UK slumped to its slowest output for more than a decade in June.

The IHS Markit/CIPS UK Construction Purchasing Managers’ Index witnessed a considerable fall in construction from 48.6 in May to 43.1 in June. When anything below the index baseline of 50 signifies a contraction to construction output, this latest fall indicates the lack of confidence in the market at the moment.

The figures will be worrying reading for the UK’s future Prime Minister who will be tasked with ensuring the Government is able to hit their targets of 300,000 new home per year by the middle of the next decade.

Based on the current market confidence, this may prove a difficult task; especially in the residential new build market. The fall in home building was the largest decrease in three years according to the June report.

Unsurprisingly, as Brexit remains uncertain, commercial construction output continued falling for its sixth consecutive month whilst civil engineering projects plummeted at their fastest pace since October 2009.

These figures echo the Office for National Statistics’ figures released by the Ministry of Housing, Communities and Local Government earlier this month.

The report found new build residential dwellings starting construction reduced significantly in the first three months of 2019. In the opening quarter of 2019, new build starts reached 36,630 in England. This marked a 9% decrease on the new build construction started during the final quarter of 2018.

Additionally, the 162,270 new build dwelling starts in the year to March is only a 1% increase on the figures from a year earlier.

New build completions followed a similar trend as home buyers delayed their purchase until Brexit became a little clearer. The 42,870 completions represented a 1% decrease on the previous quarter statistics.

Duncan Brock, Group Director at CIPS, said:

“Purchasing activity and new orders dropped like a stone in June as the UK construction sector experienced its worst month for a decade.

“This abrupt change in the sector’s ability to ride the highs and lows of political uncertainty shows the impact has finally taken its toll as new orders dried up and larger contracts were delayed again.

“The pain of Brexit indecision was felt across all three sub-sectors but the previously resilient housing sector suffered the fastest drop in three years, which is frankly worrying news.”

Tim Moore, Associate Director at IHS Markit, said:

“Greater risk aversion has now spread to the residential building sub-sector, as concerns about the near-term demand outlook contributed to a reduction in housing activity for the first time in 17 months.”

Sarah McMonagle, Director of Communications at FMB, commented:

“Alarm bells will be ringing in the ears of the two candidates vying to be Prime Minister, with these latest stats showing that the construction sector is at a standstill. Whoever wins the race for PM, I want to see that person take decisive action in their first days in office by intervening to stimulate our waning sector, which is so vital to the health of the wider economy. Indeed, without it, our country’s house building aspirations will be impossible to deliver.

“The poor performance of the construction sector over the past few months was driven partly by a drop in activity in the repair and maintenance sector. As you would expect, this part of the construction industry is particularly vulnerable to dips in consumer confidence, which the threat of a ‘no deal’ Brexit continues to perpetuate. There would be no better way to encourage homeowners to commission building projects in the second half of this year than by slashing VAT on housing repair, maintenance and improvement from 20 percent to 5 per cent. Furthermore, when we asked our members how the next PM could best prevent an economic downturn, almost 90 per cent felt this was the most effective way to achieve it.”

How significant are reductions in construction output to the property sector? Do you think these trends will change until Brexit becomes clearer?

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