Construction falls at second-fastest rate in a decade

Building activity in the construction sector fell at the second-fastest rate in over a decade, according to the latest PMI. 

The IHS Markit/CIPS Construction Purchasing Managers’ Index dropped to 43.3 in September, from 45.0 in August, marking the second-fastest downturn since April 2009.

Residential building saw its fourth successive monthly decrease. Meanwhile, commercial activity was the worst performing in the sector, followed by civil engineering which slumped at its sharpest rate in close to a decade. 

Demand weakness remained a strong factor, according to survey respondents, with little sign of improvement in September as new work inflow dropped due to Brexit uncertainty, buyer hesitancy, and low demand.

Duncan Brock, group director at CIPS, said: “The construction sector offered another devastating result in September with the second fastest fall in new orders since March 2009 and the financial crisis. After a relentless six-month decline in order books driven by Brexit uncertainty and political indecision, this is hardly surprising.”

The decline in sales aligned with further decrease in purchasing activity by construction firms. Lower operational requirements and efforts to constrain costs caused the joint-fastest decline in buying levels since January 2010.

There has been a rise in costs partly caused by increased fuel expenses and supplier charges for raw materials, but inflation fell to a three-and-a-half year low. Meanwhile, survey respondents highlighted “bottlenecks and material shortages at suppliers” resulting in delivery delays. 

Brock added: "Residential building continued to be hit hard with a fourth successive month of deterioration but the commercial sector took the biggest brunt of this downturn spiral as clients turned their back on spending and committing to larger projects. This in turn had significant knock-on effects on construction employment with the biggest fall in staffing levels since December 2010. Such disappointing news as the sector is still recovering from a lack of skills and capacity created by the last recession.

“Looking ahead the signs do not look positive. Even a moderation in input prices since March 2019 and some moderate improvement in supply chain pressures will not be enough to keep the wolf from the door as no deal looms and businesses remain Brexit-unsteady.”

UK firms were “mildly optimistic” that output volumes would pick up over the next 12 months despite historically low levels of business confidence. Employment has been reduced since the previous PMI amid cost-cutting and weak optimism. 

Joe Hayes, economist at IHS Markit, said: “Low confidence has subsequently caused construction order books to fall substantially. Panellists reported another sharp drop in demand in September that was one of the strongest in the post-crisis era.

“Forward looking indicators suggest that businesses are bracing themselves for a protracted construction slump, with input purchasing and employment both falling at rates unsurpassed since 2010. Overall, the performance of the UK economy once again hinges on the service sector showing a marked degree of resilience to offset the weakness seen in construction and manufacturing.”

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