Home News Marginal reduction in UK construction output during April

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UK construction companies reported a continued downturn in business activity in April, as highlighted  by the seasonally adjusted Markit/CIPS UK Construction Purchasing Managers’ Index® (PMI®) posting 49.4, from 47.2 in March. The index, which measures overall output in the sector, signalled only a marginal decline in April, with the rate of contraction the slowest in the current six-month period of falling activity.

Lower levels of construction output reflected declines in two of the three broad areas of activity monitored by the survey in April, with residential construction output the exception. Commercial activity dropped for the third month running, while work of civil engineering projects decreased markedly. The rise in housing activity was only marginal, but nonetheless the strongest since April 2012.

Subdued underlying demand persisted in April, as highlighted by a fall in new business volumes for the eleventh consecutive month. The current period of declining new business is the longest since that recorded in 2008/09. That said, the latest drop in new work was only marginal and the slowest since last October. April’s decrease in new business was also much slower than the last December’s 44-month low.

Employment numbers were broadly stable in the UK construction sector at the start of the second quarter.  Anecdotal evidence from survey respondents suggested that subdued demand patterns had led to cautious job hiring trends, but a degree of optimism about the year-ahead outlook had helped stabilise overall staffing levels. More than twice as many survey respondents anticipate a rise in their output over the next twelve months as those that forecast a reduction. The degree of positive sentiment was only slightly weaker than March’s recent high.

Meanwhile, input buying dropped again in April,  reflecting reduced output and new business during the latest survey period. The decrease in purchasing activity was only marginal andthe slowest since  September 2012. Despite an eleventh consecutive monthly fall in input buying, supplier lead-times lengthened in April. Moreover, the latest deterioration in vendor performance was the most marked since February 2011, which survey respondents attributed  to lower stocks and reduced capacity at suppliers.

Average costs burdens increased in April, but the rate of inflation eased for the third time in the past four months. The latest rise in input costs was the slowest since June 2012 and well below the long-run survey average. A number of construction companies linked the moderation in cost pressures to lower commodity prices on world markets.

Tim Moore, Senior Economist at Markit and author of the Markit/CIPS Construction PMI®, said: “UK construction sector output was closer to stabilisation than at any time since October 2012, according to the latest survey data. A slower decrease in output reflected an element of catch-up after some severe weather delays earlier in the  year.

“Total construction output was mainly supported by higher levels of residential building activity in April.  Some firms cited a boost to output volumes from contract wins on new house building schemes. Civil engineering remained the weakest construction sub-category, with public sector order inflows scarce outside of big-ticket infrastructure projects.

“The overall survey findings are an early indication that construction will act as less of a drag on UK GDP over the second quarter of 2013. April’s data also highlights a cautious degree of positive sentiment about the year-ahead outlook. However, total new work dropped for the eleventh month running during April, which further reduces the likelihood of improving in employment patterns  across the sector.”

David Noble, Chief Executive Officer at the Chartered Institute of Purchasing & Supply, said: “The UK’s construction sector showed signs of stabilisation in April, as it recorded its slowest  decline in six months. This is a reasonable signal that things are a bit better in the industry but that said, construction is still contracting and witnessing marginal declines in new orders.

“Government efforts to boost the economy may be filtering through as housing activity has risen in every month since February, and experienced its strongest performance for a year in April.  Compared to the end of last year, business confidence is picking up, indicating a robust degree of optimism for the year to come. The moderation in cost pressures linked to lower commodity prices is acknowledged to have brought some relief to the industry.

“Recent GDP figures reinforce the view that construction is still a weak spot for the UK economy. Commercial and civil engineering activities remained the laggards of the sector in April, burdened by longer supplier lead-times and a workforce down to bare bones, making it hard to see any major shifts in momentum in the near future.”

The Purchasing Managers’ Survey is based on data compiled from monthly replies to questionnaires sent to purchasing executives in over 170 construction companies.