The latest data from Markit/CIPS Construction Purchasing Managers’ Index® released today shows that construction output declined during August amid marked fall in new work, with the fastest fall in new orders since 2009. Commercial activity dropped for first time in two-and-a-half years and construction companies are the least optimistic about business outlook since October 2011.
August data pointed to a renewed downturn in UK construction output and another reduction in new order volumes, highlighting an ongoing deterioration in business conditions across the sector. At 49.0, down from 50.9 in July, the seasonally adjusted Markit/CIPS Construction Purchasing Managers’ Index® (PMI®) was below the 50.0 no-change mark and the second-lowest since February 2010. The marginal decline in overall output reflected lower levels of business activity in all three broad areas of the construction sector.
Residential building activity was the worst performing category of construction output monitored by the survey in August. Commercial construction activity fell for the first time in two-and-a-half years, although the rate of reduction was only marginal.
Anecdotal evidence from survey respondents attributed the drop in construction output to ongoing weak demand across the sector. This was highlighted by a decrease in new order intakes for the third consecutive month during August. Moreover, the latest fall in new business volumes was the fastest since April 2009. Construction firms cited lower spending patterns among both public and private sector clients in August.
A marked decline in construction workloads meant that construction companies generally had sufficient staffing levels to meet existing demand. As a result, employment levels stagnated in August, thereby continuing the trend seen on average throughout the summer. Some firms noted that increased concerns about the business outlook had weighed on their job hiring decisions during the latest survey period.
UKconstruction companies indicated that their business confidence weakened for the fourth time in the past five months during August. The latest reading indicated that the degree of positive sentiment regarding the year-ahead outlook is the lowest since October 2011 and weak in the context of the survey history. In line with recent trends, subdued business sentiment reflected lower new order intakes and concern about a lack of work to replace completed projects.
Reduced workloads resulted in a further solid decline in purchasing activity across the construction sector, extending the current period of contraction to three months. However, supplier lead-times lengthened again in August, thereby continuing the trend seen throughout the past two years. Survey respondents widely reported that low stocks at suppliers had contributed to delays in the receipt of construction materials. Meanwhile, latest data signalled a robust and accelerated pace of input price inflation in the construction sector, with the latest rise in cost burdens the fastest since March.
Tim Moore, Senior Economist at Markit and author of the Markit/CIPS Construction PMI®, said: “This (survey) has been the pertinent message from the UK Construction PMI surveys throughout the summer, and most worryingly the latest drop in new orders was the fastest since the sector was in full scale retreat in early 2009.
Commenting on the report, David Noble, Chief Executive Officer at the Chartered Institute of Purchasing & Supply, said: “This is dire news for the construction sector which saw its fastest drop in new orders for over three years. Undoubtedly the Government will come under more pressure to help the sector and implement Sir Adrian Montague’s proposals to kick-start house building, when it responds later this year.