UK construction sector ‘firmly stuck in a downturn’

Building activity has fallen at the second-fastest rate since April 2009, new figures have revealed.

UK construction sector ‘firmly stuck in a downturn’

The headline seasonally adjusted IHS Markit/CIPS UK Construction Total Activity Index posted 43.3 in September, down from 45.0 recorded in August, only narrowly outpaced by June’s decline.

A historically steep drop in new orders was also registered, while firms trimmed employment at the fastest rate since the end of 2010 due to unfavourable demand, client hesitancy and low confidence. Although there was a marginal pick-up in optimism, the level signalled by survey data was still historically weak.

As has been the case since March, commercial activity was the worst-performing segment. Here, the contraction gathered pace and was marked overall. Meanwhile, civil engineering activity dropped at a similarly sharp rate that was the fastest in close to a decade. A fourth successive monthly decrease in residential building was also signalled.

Responding to the figures, Howard Archer, chief economic advisor to the EY ITEM Club, said: “The purchasing managers survey points to the construction sector contracting substantially in September and at a deeper rate compared to August. The rate of contraction was the second deepest (after June) since April 2009.  

“Furthermore, September marked the seventh successive month of construction contraction.

“Specifically, the construction PMI survey fell back to 43.3 in September from 45.0 in August and 45.3 in July.

“September’s reading of 43.3 was only marginally above the more than 10-year low 43.1 suffered in June and was substantially below the 50.0 level which indicates flat activity.

“The construction PMI averaged just 44.5 in the third quarter, this was down from 47.4 in the second quarter and was the weakest quarterly average since the second quarter of 2009 (42.8).

“All sectors saw contraction in September. Commercial activity contracted for a 9th month running and at the sharpest rate since April 2009. Civil engineering contracted for an 8th successive month and at the fastest rate since October 2009. Meanwhile, house building contracted for a fourth successive month, although the rate of decline and at a slightly deeper rate than in August.

“Brexit-related uncertainties were reported to be particularly affecting the commercial sector with clients unwilling to commit to major projects. Civil engineering activity has been hampered by a lack of new work to replace completed infrastructure projects.

“New orders contracted for a sixth month running in September and at a rate similar to August’s sharpest drop since March 2009, which suggests that construction activity is unlikely to see an upturn in the near term at least. Brexit uncertainties, client hesitancy and weakened underlying demand weighed down on new business. Clients were reported to be particularly unwilling to commit to larger projects in the commercial sector.

“Confidence among construction companies remained well below long-term norms.

“Unemployment in the sector fell for a sixth month running and at the fastest rate since December 2010. 

“Some much-needed good news for construction companies saw input prices rise at the slowest rate since March 2016. However, bottlenecks and material shortages were still reported at suppliers.

“Latest ONS data show that construction output rose 0.5% month-on-month in July after a 0.7% drop in June and overall contraction of 1.2% quarter-on-quarter in the second quarter. Construction output was up 0.3% year-on-year in July.

“Manufacturing output rose 0.3% month-on-month in July after a 0.2% drop in June but was still down 0.6% year-on-year. The three-month/three-month drop in manufacturing output slowed to 1.1% in July from 2.3% in June.”

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