The latest Purchasing Managers Index (PMI) for construction data signalled a modest improvement in UK construction activity midway through the second quarter of 2018, with the pace of expansion matching that registered in April. Commercial activity growth accelerated to a three month high in May, however, softer expansion in residential and civil engineering activity were recorded. Furthermore, new order books contracted for the fourth time in the past five months amid general uncertainty in the sector.
Sam Teague, Economist at IHS Markit and author of the IHS Markit/CIPS Construction PMI: “The May PMI data signalled an unchanged pace of activity growth across the UK’s construction sector since April’s somewhat underwhelming rebound, yet nevertheless indicating a recovery in the second quarter after the contraction seen at the start of the year.
“However, activity in May was once again buoyed by some firms still catching up from disruptions caused by the unusually poor weather conditions in March, and a renewed drop in new work hinted that the recovery could prove short-lived.
“Inflows of new business slipped back into decline, signalling the resumption of the downward trend in demand seen during the opening quarter. Companies frequently noted that Brexit uncertainty and fragile business confidence led clients to delay building decisions in May.
“With new order books deteriorating and cost pressures picking back up, it’s not surprising to see construction firms taking a dimmer view of prospects and pulling-back on hiring, all of which makes for a shaky-looking outlook.”
Duncan Brock, Group Director at the Chartered Institute of Procurement & Supply, said: “The two millstones of uncertainty and weak economic growth gave the sector plenty to worry about this month, and whilst activity still grew, the lowest business confidence in seven months suggests the subdued pipeline of new work is having an effect. With a decline in new orders for a fourth time in five months, it was client hesitation and consumer diffidence towards spending that had construction activity stuttering.
“Higher prices for fuel, raw material shortages, higher labour costs combined with slow delivery times were further obstacles to growth as firms nervously assessed their workforce for much-needed talent and sub-contractors could name their price.
“However, it’s encouraging to see the housing sector put in a strong performance for a second month running, after stumbling at the beginning of the year, and with only small improvements in the other sectors, residential building is keeping construction’s head above water.
“It’s likely that the construction sector’s performance will be a slow and steady crawl through the second quarter, as the spectre of Brexit continues to dominate, and the double pincer movement of few orders, and higher costs, could see the sector stutter further.”
At 52.5 in May, the seasonally adjusted IHS Markit/CIPS UK Construction Purchasing Managers’ Index® (PMI® ) remained unchanged since April. The figure was indicative of a moderate increase in total activity, albeit one that was subdued in the context of historical data.
Some firms suggested that unusually good weather conditions had supported activity and enabled them to continue catching up after prior months’ weatherrelated disruptions.
Residential work remained the strongest of the three monitored sub-sectors for the third month running during May. The pace of expansion eased from April’s 11-month high, which had seen house building activity rebound from heavy snow in March. Both the commercial and civil engineering sectors remained in growth territory for the second month running in May, with the former being the only category to record a faster rate of expansion than in April.
Alongside easing positive sentiment, job creation softened to a four-month low in the latest survey period. Surveyed companies continued to report a shortage of skilled staff availability. Purchasing costs faced by construction firms rose sharply in May. The rate of input price inflation was the steepest registered since February. Panel members commonly reported elevated fuel costs, alongside higher plastic and steel-related input prices. Supplier delivery times continued to worsen in the latest survey, though the degree of deterioration was one of the weakest over the past year-and-a-half. Where longer times were reported, businesses frequently blamed shortages of materials at vendors.