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Construction in sharpest decline since March 2018

A continuing increase in UK housebuilding was not enough to offset a decline in UK construction companies’ output during May, according to the latest monthly statistics from the  IHS Markit/CIPS UK Construction Total Activity Index.

Housebuilding may be up, but it’s not enough to offset May’s decline

A renewed decline in total business activity during May included lower volumes of commercial work and civil engineering activity as well as fewer new orders.

At 48.6 in May, down from 50.5 in April, the headline seasonally adjusted registered below the 50.0 no-change
mark for the third time in the past four months. The latest reading was the lowest since the snow-related downturn in
construction output during March 2018.

Commercial building was the weakest area of construction activity, registering its lowest point since September 2017, as clients, according to survey respondents held back on major spending decisions in response to Brexit uncertainty and concerns about the economic outlook.

Although residential work continued to expand in May, it was at the weakest pace for three months, despite higher levels of housebuilding having been recorded by the survey since February 2018.

Construction companies reported strong competition, hesitancy among clients and longer sales conversion periods, largely reflecting subdued demand conditions in May and reported another decline in their
purchasing activity. Although only marginal, the latest reduction was the largest since September 2017. Supply
chain pressures persisted in May, which led to another sharp lengthening of average lead times among vendors. There
were a number of reports citing low stocks and shortages of materials (particularly plasterboard).

Meanwhile,business optimism was at its weakest since October 2018, with respondents citing concerns that domestic political and economic uncertainty would dampen business activity growth over the next 12 months.

Tim Moore, Associate Director at IHS Markit, which compiles the survey said that the May data revealed another setback for the UK construction sector.  “House building was the only sub-category of
construction output to buck the downward trend in May, but growth remained softer than on average in 2018.
The soft patch for construction work so far this year has started to impact on staff hiring, with some firms
cutting back on expansion plans and others opting to delay the replacement of voluntary leavers. May
data revealed that the latest fall in employment numbers was the steepest for six-and-a-half years.
Survey respondents once again noted concerns that the subdued domestic economic outlook and delays
related to Brexit uncertainty had curtailed their near-term growth prospects.”

Duncan Brock, Group Director at the Chartered Institute of Procurement & Supply said: “A fragile dreariness descended on the sector this month with lower workloads leading to the fastest decline in purchasing of construction materials since September 2017. With the continuing uncertainty around Brexit and instabilities in the UK economy, client indecision affected new orders which fell at their fastest since March 2018 and particularly affected commercial activity.

“The previously unshakeable housing sector barely kept its head above water, growing at its weakest level
since February as residential building started to lose momentum. The biggest shock however, came in the
form of job creation as hesitancy to hire resulted in the largest drop in employment for six and a half years. Not
much to be happy about it seems though an easing in some input costs for raw materials offered some relief
while energy and fuel prices continued to rise. This is unlikely to be nearly enough to turn around the
sector’s fortunes, as optimism about the strength of the sector’s future was the lowest since October 2018.

Policymakers, he said, will need to “pull a large rabbit out of the hat, and fast”, to improve these difficult conditions
and “prevent a further entrenchment of gloom and contraction this summer.”

About Fiona Russell-Horne

Fiona Russell-Horne
Editor-in-Chief across the BMJ portfolio.

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