House building a "drag on the construction sector" as activity loses momentum in March

Despite a rise in civil engineering projects and a "solid increase" in employment numbers, a slowdown in the housing sector saw growth in the UK construction industry lose its momentum in March, the latest statistics reveal.

The seasonally adjusted Markit/CIPS Construction Purchasing Managers' Index (PMI) dipped from 52.5 in February to 52.2 in the third month of the year, to signal the joint-slowest upturn in overall construction output for six months.

Driven by rising infrastructure spending and a strong pipeline of new work throughout the UK, civil engineering projects was the main growth engine but the rebound in both commercial and civil engineering activity was offset by the stalling house building sector.

Squeezed client budgets acted as a brake on new business growth with the rate of expansion unchanged from the four-month low seen in February.

According to the survey, business confidence was among the highest seen since the end of 2015, which construction companies linked to upcoming tender opportunities, plans for increased marketing expenditure and hopes of a sustained recovery in clients’ willingness to spend.

And despite the pace of job creation easing to a three-month low, a solid increase in employment numbers was recorded in March as construction companies remained upbeat about future growth prospects.

Tim Moore, Senior Economist at IHS Markit and author of the Markit/CIPS Construction PMI, said: “UK construction firms experienced a growth slowdown in March, with the loss of momentum
centred on housebuilding.

"A weaker trend for residential work has been reported throughout 2017 so far, which provides an indication that the cooling UK housing market has started to act as a drag on the construction sector.

“Survey respondents noted that the resilient economic backdrop and receding Brexit related anxieties have helped to stabilise client demand after the disruption to development projects last summer.

“Despite a relatively subdued rise in new work during March, UK construction firms reported a more sanguine assessment of their year-ahead growth prospects. Business confidence was among the
highest seen since the end of 2015, which construction companies linked to upcoming tender opportunities, plans for increased marketing expenditure and hopes of a sustained recovery in
clients’ willingness to spend.”

Overall purchasing activity in the construction sector was disappointingly tame, shackled by a lack of new orders and rising costs, says Duncan Brock, director of customer relationships at the Chartered Institute of Procurement & Supply.

“Where the housing sector acted as the main engine of growth over the last four years, this month it was slower and stuttering." he said.

“This downbeat effect took a small bite out of any strong rises in employment levels, as the increase in staff hiring was at a three-month low. But as the sector showed strong optimism for future business, concerns over the skilled labour availability are likely
to persist in coming months.

“Pressure on suppliers remained intense, as they battled against lower stocks and made greater efforts to fight the pincer movement of a shortage in some materials and the continued force of higher global
commodity prices.

“Now the trigger has been pulled to propel the UK out of the EU, the construction sector must keep an attentive eye on how the UK Government’s negotiations will play out and whether consumer and
business caution returns to hamper further progress.”

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