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Construction output growth slows in April

UK construction companies saw growth slow up sharply in April, with output and new orders expanding at the slowest rates since June 2013, according to the latest Markit/CIPS UK Construction Purchasing Managers’ Index® survey.

Construction output growth slows in April

At 54.2, down from 57.8 in March, the headline seasonally adjusted index dropped for the second month running and was the lowest for almost two years. However, the index remained above the 50.0 no-change value and signalled a solid overall pace of expansion.

Residential building activity was by far the best performing broad area of construction output during April, although even in this category the pace of expansion slipped to a 22-month low. Meanwhile, growth of commercial construction work was the least marked since August 2013 and civil engineering activity decreased for the first time in four months.

A key factor weighing on overall construction output growth was weaker new business gains in April. Moreover, new business growth has now slowed in eight of the past ten months. Reports from survey respondents suggested that underlying conditions remained favourable, especially in the house building sector, but some clients had delayed spending decisions ahead of the general election.

Looking ahead, business confidence regarding the 12-month outlook dipped from the nine-year high seen in March, but remained stronger than its long-run average. A number of firms cited optimism that underlying demand would continue to improve, while others suggested that the removal of election-related uncertainty would help support new business gains.

Tim Moore, Senior Economist at Markit and author of the Markit/CIPS Construction PMI®, said:

“April’s survey highlights another growth slowdown across the UK construction sector, with new work expanding at the weakest pace for almost two years.

“The uncertain general election outcome appears to have put some grit in the wheels of decision making. Construction firms widely noted delays with clients’ budget setting and a reduced propensity to commit to new projects.

“Despite experiencing pre-election risk aversion among clients in April, construction companies indicated a strong degree of confidence regarding the year-ahead outlook. As a result, job hiring was robust and little-changed since March, placing further pressure on skilled staff availability.

“Taken as a whole, the latest survey presents a far more upbeat picture than the curiously weak official construction output data for the first quarter of 2015.

“Not only does the UK Construction PMI survey indicate that output remained in growth territory during April, but the latest data signals ongoing strains on operating capacity. Highlighting this, sub-contractor pay rates, a useful bellwether of industry pressures, increased at the fastest pace since the survey began 18 years ago.”

David Noble, Group Chief Executive Officer at the Chartered Institute of Procurement & Supply, said: “The General Election has given the sector pause for thought as procurement and supply management professionals reported a slowdown in the pace of new construction orders growth. Though the index still remains in positive terrain, this deceleration has been attributed to project delays and hesitancy as the country prepares to vote.

“Sub-contractors continue to be the winners in ongoing work, being in short supply and demanding higher rates for their labour – rising at the swiftest pace for almost 20 years. However, the sector continued to gear up and increase in-house staffing levels to meet the needs of higher levels of investment and to increase capacity and capability levels in supply chains.

“With this slack in new pipeline orders, suppliers were able to improve their performance as well as increase levels of stock to lighten any log jam in the supply of raw materials.

“Though new business growth in the sector has slowed for eight months out of the last ten, business optimism is only slightly bruised and remains more

About Fiona Russell-Horne

Group Managing Editor across the BMJ portfolio.

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