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January data from the latest IHS Markit/CIPS UK Construction Total Activity Index pointed to a loss of momentum for the UK construction sector, with business activity growth easing to its weakest for ten months. New orders increased only marginally at the start of 2019, which contributed to the slowest expansion of employment numbers for two-and- a-half years. A number of survey respondents noted that Brexit uncertainty had led to hesitancy among clients and a corresponding slowdown in progress on new projects.

The headline seasonally adjusted IHS Markit/CIPS UK Construction Total Activity Index dropped to 50.6 in January, from 52.8 in December. The index has postedabove the 50.0 no-change mark in each month since the snow- related decline seen in March 2018, but the latest expansion was the weakest seen over this ten month period ofgrowth.

Tim Moore, Economics Associate Director at IHS Markit, which compiles the survey: “UK construction growth shifted down a gear at the start of 2019, with weaker conditions signalled across all three main categories of activity. Commercial work declined for the first time in ten months as concerns about the domestic economic outlook continued to hold back activity. The latest survey also revealed a loss of momentum for house building and civil engineering, although these areas of the construction sector at least remained on a modest growth path.”

Duncan Brock, Group Director at the Chartered Institute of Procurement & Supply: “Residential building, the stalwart of the sector leading the way in the last six months, lost its momentum with the weakest performance since March 2018. The biggest shock came in the form of job creation (and) employment rose at the slowest rate since July 2016 and with optimism also in short supply, the sector only needs a small nudge to tip it closer to recession.”

All three categories of construction output recorded weaker trends than those reported in December. Residential work was the strongest performing area, although the latest expansion was only modest and the slowest seen since March 2018.

Commercial work was the weakest performing area of construction output in January. Latest data indicated a decline in work on commercial construction projects for the first time in ten months. Anecdotal evidence suggested that Brexit-related anxiety and associated concerns about the domestic economic outlook continued to weigh on client demand.

Construction firms widely commented on softer demand conditions and longer sales conversion times, reflecting a wait-and-see approach to spending by clients. Concerns about the near-term outlook for new projects resulted in more cautious staffhiring policies at the start of 2019. The latest survey pointed to the slowest rise in employment numbers since July2016.

Construction firms remain positive about the outlook for business activity in 2019. Around 41% of the survey panel anticipate a rise in output, while only 16% forecast a fall. However, the resulting index signalled a moderation in optimism since December. Large-scale civil engineering projects were cited as a key source of optimism, while and Brexit uncertainty was the most commonly cited concern.

Brian Berry Chief Executive of the FMB, said: “The ongoing political uncertainty is partly to blame for this set-back. Political uncertainty is the enemy of construction firms that rely on the spending power of homeowners to commission home improvement projects. The UK is set to leave the EU next month, and yet we are still none the wiser about what the future holds. Given these intense headwinds, it should not be surprising that the sector suffered such a sharp decline.”

 

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