UK construction firms experienced a difficult May with output growth easing to its weakest for almost three years and incoming new work declining for the first time since April 2013 according to the latest Markit/CIPS UK Construction PMI survey. Survey respondents noted a general slowdown in market conditions and delays to client decision making ahead of the EU referendum.
Tim Moore, senior economist at Markit, said: “Construction companies are facing a challenging second quarter of 2016, with growth headwinds apparent across all three key areas of activity. May data signalled the worst month for commercial building since June 2013, while residential work and civil engineering activity both saw a renewed loss of momentum.
“Survey respondents noted that the forthcoming EU referendum has disrupted new order flows and the timing of client decision making in particular. Heightened uncertainty and subdued general economic conditions in turn contributed to the first outright fall in new work received by construction firms for just over three years.”
David Noble, group chief executive at the Chartered Institute of Procurement & Supply, said: “The sector appeared to have taken residence in a waiting room of non-activity, as continuing poor global economic conditions and uncertainty around the EU referendum impacted growth and new orders.
“Supplier performance degraded and continued its downwards trend which began in September 2010. Purchasing activity ground to a virtual standstill.”
There were signs that construction companies remain relatively upbeat about the growth outlook, with more than half of the survey panel (51%) expecting a rise in output over the next 12 months and only one-in-seven (14%) anticipating a fall. As a result, job creation picked up in May and reached a four-month high.
May data signalled an outright reduction in new order volumes for the first time since April 2013. Anecdotal evidence pointed to a general lack of client confidence, driven by heightened uncertainty about the economic outlook. Moreover, a number of firms noted reluctance among clients to place orders and commence contracts until after the EU referendum.
Around one-third of respondents have seen a detrimental impact on their business from uncertainty regarding the forthcoming referendum vote. Brexit ‘uncertainty’ was making it difficult to make business decisions (32%), with a similar proportion noting an adverse impact on their sales (around 34% of construction firms indicated a detrimental impact in this area).
Staff hiring was maintained in May, which marked three years of continuous job creation. The latest increase in payroll numbers was the fastest since January, which construction companies linked to new project starts and high levels of orders-in-hand.