UK construction activity remains subdued in May

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Latest PMI data signalled only a modest improvement in UK construction activity midway through the second quarter, with the pace of expansion matching that registered in April. Commercial activity growth accelerated to a three-month high in May; however, softer expansions in both residential and civil engineering activity were recorded

At 52.5 in May, the seasonally adjusted IHS Markit/CIPS UK Construction Purchasing Managers’ Index® (PMI®) remained unchanged since April. The figure was suggestive of a moderate increase in total activity, albeit one that was subdued in the context of historical data.

Some firms suggested that unusually good weather conditions had supported activity and allowed them to continue catching up after prior months’ weather-related disruptions.

Residential work remained the strongest of the three monitored sub-sectors for the third month running during May. The pace of expansion eased from April’s 11-month high, which had seen housebuilding activity rebound from heavy snow in March. Both the commercial and civil engineering sectors remained in growth territory for the second month running in May, with the former being the only category to record a faster rate of expansion than in April.

New order books slipped back into decline during May. Panel respondents blamed political and economic uncertainty, subdued retail sector conditions and fragile business confidence as key causes of weaker demand for construction projects. That said, the rate of contraction was only fractional and slower than the declines seen throughout the first quarter.

Meanwhile, optimism towards future growth prospects slumped to a seven-month low in May. The drop in confidence was linked to fears of political and economic uncertainty and an expected slowdown in the construction sector.

Sam Teague, Economist at IHS Markit and author of the IHS Markit/CIPS Construction PMI® said: “The May PMI data signalled an unchanged pace of activity growth across the UK’s construction sector since April’s somewhat underwhelming rebound, yet nevertheless indicating a recovery in the second quarter after the contraction seen at the start of the year.

“However, activity in May was once again buoyed by some firms still catching up from disruptions caused by the unusually poor weather conditions in March, and a renewed drop in new work hinted that the recovery could prove short-lived.”

Phil Harris, Director at BLP Insurance, said:

“The unchanged pace of construction growth is unsurprising as new developments, previously delayed by the bad weather, continue to come on stream. However there remains a tremendous amount of uncertainty in the sector, exacerbated by extended material lead times which are increasing costs and delaying the build programme. Skills shortages remain a critical issue, and although there’s extensive discussion on how to address this, a solution is still a long way off.

“Businesses with exposure to Carillion are also still feeling the repercussions of the collapsed construction giant, while those that avoided any impact may still worry about exposure to a similar situation occurring elsewhere. The well-publicised increasing debt levels of outsourcing companies with construction arms will have done little to ease the sense of nervousness.

“The strength of the construction industry at present lies in housing, with commercial activity lagging behind. In the housing sector the fundamentals are still strong; demand for new homes is high, supported by consumer confidence and a low interest rate.

“Although May was a stronger month for commercial activity, the sector remains prone to being buffeted by the political outlook because it lacks the domestic growth pressure prevalent in the housing market. Office space demand in London is declining, retailers continue to hit the headlines with store closures, and while hotels and leisure are proving resilient, overall the sector is not booming.”

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