UK Construction Experiences Sharpest Decline Since March 2018

The UK construction sector experienced its sharpest decline in construction output since the storms of March 2018.

According to the seasonally adjusted IHS Markit/CIPS UK Construction Total Activity Index for May, the index rating had slipped below 50 (no change point) for the third time in four months.

Despite economists predicting that construction output would remain in line with March’s figure of 50.5, May’s index rating of 48.6 is the lowest rating since the uncharacteristic snowy, blizzard filled month of March 2018. However, the only blizzards interrupting construction output last month involved the frosty uncertainty of a hostile Brexit environment.

Whilst the weather could be blamed for a reducing construction in March 2018, the current climate’s troubles have been attributed to political uncertainty and issues surrounding the UK’s future relationship with the EU.

Commercial activity was the weakest area of the construction sector in May. Output fell to its lowest trough since September 2017. Similarly perturbed by a lack of political clarity, civil engineering also declined for the fourth consecutive month in May.

Index respondents had found that clients were reluctant to initiate any further building work until Brexit, political and economic outlooks become more positive and declarative.

Whilst residential house building has bucked the trend by increasing modestly each month since February 2018, the increase in May signalled the weakest pace in three months. New orders received by UK construction companies in May experienced the steepest decline since March 2018 when poor weather ground new work to a halt.

With construction output and demand shrinking, May’s construction employment fell to its lowest level in over six years. Whilst only marginal, a construction company’s purchasing activity fell to its lowest levels since September 2017.

Duncan Brock, Group Director at CIPS, said:

“A fragile dreariness descended on the sector this month with lower workloads leading to the fastest decline in purchasing of construction materials since September 2017. With the continuing uncertainty around Brexit and instabilities in the UK economy, client indecision affected new orders which fell at their fastest since March 2018 and particularly affected commercial activity.

“The previously unshakeable housing sector barely kept its head above water, growing at its weakest level since February as residential building started to lose momentum. The biggest shock however, came in the form of job creation as hesitancy to hire resulted in the largest drop in employment for six and a half years. Not much to be happy about it seems though an easing in some input costs for raw materials offered some relief while energy and fuel prices continued to rise.

“This is unlikely to be nearly enough to turn around the sector’s fortunes, as optimism about the strength of the sector’s future was the lowest since October 2018. Policymakers will need to pull a large rabbit out of the hat, and fast, to improve these difficult conditions and prevent a further entrenchment of gloom and contraction this summer.”

Tim Moore, Associate Director at IHS Markit, which compiles the survey, commented:

“The soft patch for construction work so far this year has started to impact on staff hiring, with some firms cutting back on expansion plans and others opting to delay the replacement of voluntary leavers. May data revealed that the latest fall in employment numbers was the steepest for six-and-a-half years. Survey respondents once again noted concerns that the subdued domestic economic outlook and delays related to Brexit uncertainty had curtailed their nearterm growth prospects.”

What do the construction statistics suggest about the long-term property market?

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