CIPS News


Construction output growth slows in April amid weakest rise in new work since June 2013

CIPS 5 May 2015

Business activity growth hits 22-month low 

Markit/CIPS UK Construction PMI®

Construction output growth slows in April amid weakest rise in new work since June 2013

Key points: 

  • Business activity growth hits 22-month low
  • Robust pace of job creation, despite slower rise in new orders
  • Sharpest increase in sub-contractor charges since the survey began in 1997

 

UK construction companies indicated a sharp loss of growth momentum in April, with output and new order expanding at the slowest rates since June 2013. A number of survey respondents suggested that uncertainty related to the forthcoming general election had contributed to delays in clients’ spending decisions.

However, construction sector job creation remained robust in April and there were widespread reports of worsening capacity pressures. This contributed to another drop in sub-contractor availability and a corresponding increase in sub-contractor pay rates, with the latest rise the fastest since the survey began in April 1997.

 
At 54.2, down from 57.8 in March, the headline seasonally adjusted Markit/CIPS UK Construction Purchasing Managers’ Index® (PMI®) dropped for the second month running and was the lowest for almost two years. However, the index remained above the 50.0 no-change value and signalled a solid overall pace of expansion.

Residential building activity was by far the best performing broad area of construction output during April, although even in this category the pace of expansion slipped to a 22-month low. Meanwhile, growth of commercial construction work was the least marked since August 2013 and civil engineering activity decreased for the first time in four months.

A key factor weighing on overall construction output growth was weaker new business gains in April. Moreover, new business growth has now slowed in eight of the past ten months. Reports from survey respondents suggested that underlying conditions remained favourable, especially in the house building sector, but some clients had delayed spending decisions ahead of the general election.

Looking ahead, business confidence regarding the 12-month outlook dipped from the nine-year high seen in March, but remained stronger than its long-run average. A number of firms cited optimism that underlying demand would continue to improve, while others suggested that the removal of election-related uncertainty would help support new business gains.

Robust job creation was maintained across the construction sector in April, although the rate of staff hiring was still less marked than the average seen in 2014 as a whole. Increased workforce numbers were linked to rising business investment and efforts to boost operating capacity.

Meanwhile, sub-contractor usage moderated slightly in April, but this did not prevent another marked drop in sub-contractor availability. As a result, sub-contractor charges rose sharply, at the fastest pace since the survey began 18 years ago.

April data suggested that the worst phase of the downturn in supplier performance may have passed, as the latest lengthening of supplier lead times was the least marked since June 2013. Moreover, input cost inflation eased sharply to its lowest for just over two years. A number of firms noted that increased stocks at suppliers had helped alleviate some of the strain on materials availability and vendor capacity.

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

“The General Election has given the sector pause for thought as procurement and supply management professionals reported a slowdown in the pace of new construction orders growth. Though the index still remains in positive terrain, this deceleration has been attributed to project delays and hesitancy as the country prepares to vote. 

“Sub-contractors continue to be the winners in ongoing work, being in short supply and demanding higher rates for their labour – rising at the swiftest pace for almost 20 years. However, the sector continued to gear up and increase in-house staffing levels to meet the needs of higher levels of investment and to increase capacity and capability levels in supply chains.

“With this slack in new pipeline orders, suppliers were able to improve their performance as well as increase levels of stock to lighten any log jam in the supply of raw materials. 

“Though new business growth in the sector has slowed for eight months out of the last ten, business optimism is only slightly bruised and remains more solid than the average over the life of the index.” 

Ends.

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