Construction output growth is unchanged from February’s ten-month low and job creation has weakened according to the latest Markit/CIPS UK Construction Purchasing Managers’ Index (PMI) survey. The survey has also found that the residential sector slowdown has been offset by a rebound in civil engineering and commercial work.
UK construction companies indicated a sustained upturn in overall business activity during March, but the pace of expansion remained relatively subdued in comparison to the trends seen for much of the past three years. This largely reflected a further moderation in new business growth, with the latest increase the weakest since April 2015. Meanwhile, job creation also softened across the construction sector in March and sub-contractor usage dropped for the second month running.
Tim Moore, senior economist at Markit and author of the PMI survey, said:“March’s survey confirms that the UK construction sector is experiencing its weakest growth phase since the summer of 2013. Residential building has seen the greatest loss of momentum through the first quarter of 2016, which is a surprising reversal of fortunes given strong market fundamentals and its clear outperformance over the past three years.
“Construction firms were reliant on a rebound in commercial building and resurgent civil engineering growth to offset the slowdown in housing activity. Heightened uncertainty about the business outlook appears to have weighed on overall construction demand so far in 2016, with survey respondents citing cautious client spending patterns and a reduced willingness to commit to new projects.
“As a result, volumes of new work disappointed in March as order book growth slipped for the third month in a row and reached its weakest since the pre-election blip last year.”
Chris Temple, PwC’s UK engineering and construction leader, said: “We’re now seeing increased volatility across some sub-sectors, in particular residential housebuilding, mainly as a result of greater levels of market uncertainty, stalled client spending and delays in project development.”
At 54.2 in March, the seasonally adjusted index posted above the neutral 50.0 value for the thirty-fifth month running. However, the latest reading was unchanged since February and indicated the joint-slowest rate of output growth since June 2013.
Slower growth of incoming new work continued to act as a brake on construction output in March. Reports from survey respondents cited a generally supportive economic backdrop, but some noted that greater uncertainty about the business outlook had resulted in more cautious spending patterns among clients. Reflecting this, latest data signalled the weakest rise in new work received across the construction sector since the pre-election slowdown in April 2015.
Looking ahead, the majority of survey respondents (51%) expect a rise in business activity at their units over the next 12 months, while only 11% forecast a reduction. While this signalled that UK construction companies remain optimistic about their prospects for growth, the overall degree of confidence was the joint-lowest since December 2014.
David Noble, Group Chief Executive Officer at the Chartered Institute of Procurement & Supply, said: “There was little comfort to be had this month, as the construction sector was awash with caution and hesitancy not seen since the pre-election lull of 2015. Clients were unwilling to commit to new contracts or expand existing work, meaning that new business growth was at its most fragile since April 2015.
“Though activity and new work slowed, construction firms enjoyed the slowest rate of cost increases for just over six years, largely due to ongoing falls in commodity prices. There was evidently a loss of momentum in the sector, though cautious optimism was sustained as a result of encouraging domestic economic conditions, but against a background of some political uncertainty.”