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8th December 2017

 

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Construction growth continues to slow in May

Released last week, the Markit/CIPS UK Construction Purchasing Managers' Index revealed that construction growth continued to slow in May, with output growth hitting a three-month low. New business has risen at much slower pace and confidence in business outlook has dropped sharply since April

May data indicated that output increased again in the UK construction sector, but growth momentum slowed further from the near-two year high seen in March. This was highlighted by a fall in the seasonally adjusted Markit/CIPS Construction PMI from 55.8 in April to 54.4 in May.

While the latest reading still signalled a solid overall increase in construction activity, the pace of expansion was the slowest for three months.
Moreover, the survey showed that new business growth and confidence about the 12-month outlook were both much less positive than in April.

Construction firms indicated that commercial output remained the fastest growing broad area of activity in May. The slowest expansion was seen in residential building, which increased only marginally over the month. Latest data meanwhile pointed to a much weaker rate of civil engineering growth than was the case in April, with the increase in activity also the slowest in three months.

New business growth eased markedly in May to its weakest for four months. This meant that the rate of new work expansion was also much slower than the four-and-a-half year high seen in March.

Companies that saw an increase in new business inflows mostly commented on competitive pricing strategies at their units. Some firms noted that weaker confidence in the economic outlook had acted as a drag on demand for new construction projects in May.

Slower new business growth and shortages of invitations to tender contributed to a marked downturn in construction firms' confidence about the outlook for the next 12 months. The degree of positive sentiment about the year-ahead outlook was the lowest since October 2011 and much weaker than the average recorded since the UK economy entered deep recession in mid-2008.

However, construction firms added to their payrolls numbers for the third month running, driven by ongoing growth in business activity during May. Input buying continued to rise during the latest survey period but, in line with the trend for new work, the rate of expansion slowed sharply since April.

Purchasing activity has increased since January 2011, although the latest expansion was the slowest for eight months. This in turn contributed to the least marked deterioration in supplier performance for a year-and-a-half. Where longer lead-times were reported, it was generally linked to low stock levels at vendors.

Cost inflation was little-changed from the 25-month low registered in April and slower than the long-run survey average. Constructors suggested that increased fuel and steel prices led to higher costs in May. However, there were some reports that a more subdued demand environment had assisted price negotiations with suppliers.

"May's survey highlighted a big fall-back in new business growth following the large spurt of order gains seen during the Spring," says Tim Moore, Senior Economist at Markit.

"A softer trend in new projects set the tone for the construction sector in May, with output growth hitting a three-month low and business confidence dropping sharply since April.

"While still in positive territory, the month-on-month fall in business confidence was the greatest since June 2010, which was when plans for the autumn government spending review were first announced.

This reassessment of the year-ahead outlook represents worries within the construction sector that weakening economic conditions could leave firms running on empty again once existing projects have come to completion."

Commenting on the report, David Noble, Chief Executive Officer at the Chartered Institute of Purchasing & Supply, said:

"Reports of the UK's return to recession appear to have delivered a blow to general confidence in construction, with this month's PMI posing some big questions for the sector in the coming months.

"Although still in growth, the marked weakening in new orders since March and April, particularly for larger civil engineering projects, suggests that the recent ramping up of employment in response to work-in-hand may not be sustained.

"With purchasing activity softening in response to weaker demand, suppliers of raw materials will be tempted to keep ever smaller inventories, meaning the response to any future pick-up in demand may be sluggish.

"On a more positive note, the fall in inflation is allowing construction companies to price more competitively to win new contracts, but could be a double-edged sword as suppliers continue to see their margins squeezed."

T: +44 20 7064 6283
E: rachel.harling@markit.com
W: www.markit.com

T: +44 1780 761576
E: trudy.salandiak@cips.org

8th June 2012




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