Construction companies, CIPS UK Construction, UK CONSTRUCTION PMI
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UK construction companies indicated a renewed decline in total business activity during May 2019, while lower volumes of commercial work and civil engineering activity more than offset a modest increase in housebuilding

New orders also decreased across construction companies, with survey respondents noting that subdued domestic economic conditions had led to project delays and fewer tender opportunities.

At 48.6 in May, down from 50.5 in April, the headline seasonally adjusted IHS Markit/CIPS UK Construction Total Activity Index 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 in May, with output falling to the greatest extent since September 2017.

Survey respondents widely commented that clients had opted to hold back on major spending decisions in response to Brexit uncertainty and concerns about the economic outlook. May data also revealed a decline in civil engineering activity for the fourth consecutive month.

Construction companies cited constrained client budgets and a headwind from domestic political uncertainty. Residential work continued to expand in May, albeit at the weakest pace for three months.

Higher levels of house building have been recorded in each month since February 2018. The latest survey pointed to a modest reduction in new orders received by UK construction companies, with the rate of decline the steepest since March 2018.

Construction companies reported strong competition, hesitancy among clients and longer sales conversion periods, largely reflecting subdued demand conditions in May. Reduced workloads led to more cautious recruitment strategies and the non-replacement of departing staff in May.

As a result, the latest survey pointed to the sharpest drop in construction employment for six-and-a-half years. Construction companies 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). Average input prices continued to rise in May, which was often attributed to higher fuel and energy costs.

Duncan Brock, group director at the Chartered Institute of Procurement & Supply: “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 the 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.”

Phil Harris, director at BLP Insurance, comments on the sector: “Despite last month’s bounce back into expansion territory, it was unsurprising to see a significant drop in today’s PMI figures under a cloud of continued political turmoil.

“Nevertheless, market fundamentals continue to remain positive. The planning pipeline for the residential sector is healthy, and a promising year-on-year boost in value (over 25%) for onsite office projects in the past few months could be a long-awaited inflexion point in the three-year commercial lul.

“Elsewhere, the decision by Dumfries and Galloway Council to cough up nearly £7m to end a private finance initiative (PFI) contract in recent weeks is symptomatic of the ongoing problems with the scheme.

“Were it not for the Brexit stranglehold on the political agenda, the government would surely have made progress towards introducing a replacement by now and lent some confidence to future contracts.

Read the full report here.


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