Buyers saw Brexit-related uncertainty easing its restraining effect on demand and prompting improved business expectations for the next 12 months ©123RF
Buyers saw Brexit-related uncertainty easing its restraining effect on demand and prompting improved business expectations for the next 12 months ©123RF

Modest confidence returns to residential construction sector

4 October 2016

The UK’s construction sector returned to growth in September mainly driven by a recovery in residential building, according to the latest IHS Markit/CIPS UK Construction Purchasing Managers Index.

After four months of sustained decline, new construction orders also rebounded in a month that saw survey respondents reporting improving client confidence.

Respondents also saw Brexit-related uncertainty easing its restraining effect on demand and prompting improved business expectations for the next 12 months.

Output over the next year was anticipated by 45% of respondents, with only 9% expecting a reduction. Despite the rebound, however, confidence was still not as high as it had been at the start of 2016.

With the index registering 52.3 in September, up from 49.2 in August, construction firms attributed the rebound to increasing residential building. Values above 50 indicate growth and those below show contraction.

Civil engineering activity expanded at its fastest since March but commercial construction activity decreased for the fourth month running.

While this is its longest period of sustained decline since early-2013 the latest fall was only modest and the slowest recorded since the downturn began in June.

Higher levels of overall construction activity meant a rise in new work was seen for the first time since April. Anecdotal evidence suggested this was due to improving domestic economic conditions and an upturn in housing-related demand.

Increased work led in turn to a moderate rise in employment levels across the construction sector, although subcontractor usage continued to fall at one of the fastest rates since late-2013.

Survey data highlighted rising input buying - raw materials - across the construction sector while construction companies indicated that supply chain pressures eased in September.

Although vendor performance was seen to deteriorate in the month it was the least marked deterioration seen for almost six years.

The falling value of sterling was reported by many respondents to have pushed up the cost of construction materials and several also noted that domestic suppliers had sought to pass on higher imported raw material costs.

CIPS CEO David Noble said: “The residential sector was the winner this month, as consumer confidence made a modest recovery, post the EU referendum.

“Overall, the fastest rise in new orders for construction projects since April ended a four month decline, and purchasing activity was at its highest since March.”

“But, the sector still faces challenges with continuing pressures on input prices resulting from the weaker pound and the lingering uncertainty of the Brexit process and how it will impact on future business.”

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