Construction downturn 'loses intensity'

4 February 2020

The construction sector has seen a boost in demand due to “receding political uncertainty”, the latest PMI has shown.

Firms are the most optimistic about growth since April 2018 as clients’ willingness to spend has increased since the general election, which is expected to result in higher workloads for the year ahead.

Construction companies highlighted that “reduced domestic political uncertainty had the potential to unlock new projects and provide an additional boost to client spending”.

The IHS Markit/CIPS UK Construction Purchasing Managers’ Index showed activity has rebounded from 44.4 in December 2019 to 48.4 in January 2020. While figures were still below the 50.0 no-change threshold, it showed that output fell at the slowest pace in eight months. 

Tim Moore, economics associate director at IHS Markit, said: “The construction sector downturn lost intensity in January amid slower reductions in house building, commercial work and civil engineering activity. Commercial work dropped at the slowest pace since the start of 2019 and was the main beneficiary of receding political uncertainty.”

Business volumes are “close to stabilisation” compared to late last year, with the latest data indicating only a slight drop in new orders. The fall in commercial activity has slowed despite January being the 13th consecutive month of decline. 

Civil engineering remained the worst performing category with firms pointing to “a lack of tender opportunities to replace completed contracts”. Meanwhile, house building was the best performing area, experiencing a slight decline in January.

Supply chain capacity experienced a “modest degree of pressure” with suppliers' lead times increasing despite lower purchasing volumes at the start of 2020, according to survey respondents. Higher costs for fuel and haulage, as well as for imported construction products and materials, were also mentioned.

Duncan Brock, group director at CIPS, said: "Though the overall index still registered below the no-change neutral mark, the signs are good that the sector is building up momentum for the year ahead and recovering some losses in new work, which will ease concerns that the last bout of uncertainty has inflicted irreparable damage on the sector. 

"Job losses are still in evidence overall and with an increase in subcontractor use, it appears the sector is looking for short-term fixes to manage current workloads. Construction firms are not yet ready to scale up plans to increase workforces in the coming months without a stronger economic and political recovery clearly in sight.”

Brock also warned that “the sector could easily recoil and shrink again” and that “the domestic political situation and the UK’s attempt to find its place in the world remains littered with obstacles”.

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