UK Construction Sector Moves Closer To Stabilisation, August Reveals Latest Markit Report

This year’s construction slump in the UK continued in August, but it was less severe than expected, according to new data on employment and confidence.

This month’s construction PMI from Markit/CIPS shows that, despite the continued decline, the industry is “closer to stabilisation” than it was in November.

Despite remaining below the no-change threshold of 50.0, the construction PMI rose to 49.2 in August from a record low of 45.9 in July, according to the report.

The latest decrease in new order volumes was the least significant since May, bringing them closer to a state of equilibrium. In turn, this led to an uptick in construction-related employment and an uptick in companies’ forecasts for the following year.

However, latest data indicated a further steep acceleration in input cost inflation. Purchase prices rose at their fastest rate in just over five years amid reports that currency depreciation had acted as an impetus for increased charges among construction materials suppliers.

Reports from survey respondents suggested that Brexit uncertainty continued to act as a brake on the construction sector during August with commercial building and housing activity both slowing but at a reduced pace than July.

Civil engineering activity stabilised after a decline in the previous month, while both subsectors contracted at their slowest rate in three months during August.

Looking ahead, construction firms pointed to a rebound in business confidence from July’s 39-month low. Although the degree of positive sentiment was the highest since May, it remained close to the weakest recorded over the past three years.

“The downturn in UK construction activity has eased considerably since July, primarily helped by a much slower decline in commercial building,” said Tim Moore, senior economist at Markit and author of the Markit/CIPS Construction PMI.

There has been a steady stream of invitations to tender in August, which construction firms attribute to a nascent recovery in client confidence following the EU referendum result.”

“However, the latest survey indicates only a partial move towards stabilisation, rather than a return to business as usual across the construction sector.

“There were still widespread reports that Brexit uncertainty had dampened demand and slowed progress on planned developments, especially in relation to large projects. Total new orders decreased in August, reversing a three-year trend of steady growth that began in May of this year.

“Despite another month of reduced output, the latest figures can be viewed as welcome news overall after a challenging summer for the construction sector. The improvement in August’s UK manufacturing PMI data supports the idea that the immediate consequences of Brexit uncertainty will be less severe than anticipated.

The impact of the weak pound on the construction sector was felt by purchasing costs, according to David Noble, group chief executive officer of the Chartered Institute of Procurement & Supply.

“Firms reduced their purchasing volumes as a result, as new orders and activity continued to fall – though at a more moderate rate compared to last month. Companies’ shrinking profit margins drew attention to rising costs of energy and raw materials like steel and timber.

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“Employment levels recovered to a modest degree, though at the second-slowest pace for three years. Some companies said they were going to hire more people in the hope that business would pick up at the end of the year. Business sentiment was moderately more positive than that seen in the immediate aftermath of the Brexit vote.

“After the shock of last month’s seven-year low in the overall index, the picture now is more about stabilisation than searing growth, as the sector remained in contraction. The housing sector continued its downward slide, but the drop in activity was much softer in August.”

Last Updated on December 28, 2021

Indra-Gupta

Author: Indra Gupta

Indra is an in-house writer with a love of Newcastle United and all things sustainable.

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