Construction stabilising – Markit
4th February 2020

The decline in UK construction is slowing, with new business volumes close to stabilisation – reportedly as a result of ‘receding political uncertainty – according to the IHS Markit / CIPS UK Construction PMI published today.

New business volumes were also close to stabilisation, which contrasted with the sharp falls seen in the final quarter of last year.

Looking ahead, construction companies are now the most optimistic about their growth prospects since April 2018. A number of firms noted that clients' willingness to spend had picked up after the general election, which should translate into rising workloads over the course of 2020, the report continues.

“The headline seasonally adjusted IHS Markit/CIPS UK Construction Total Activity Index rebounded from 44.4 in December to 48.4 in January. The latest reading was still below the 50.0 no-change threshold, but signalled the slowest fall in overall construction output for eight months.

“House building was the best performing broad area of construction activity, with output falling only slightly in January. Mirroring the overall construction output trend, residential work fell at the slowest pace since May 2019.

“Commercial activity decreased for the thirteenth consecutive month in January, but the rate of contraction was much weaker than in December and the softest since the start of 2019. A number of survey respondents noted that reduced domestic political uncertainty had the potential to unlock new projects and provide an additional boost to client spending. Meanwhile, civil engineering was the worst performing category of output in January, with construction firms often citing a lack of tender opportunities to help replace completed infrastructure contracts.

“January data indicated only a slight drop in new orders received by construction companies. The rate of new business contraction eased sharply since December and was the least marked in the current ten-month period of decline. Anecdotal evidence suggested that greater clarity in relation to Brexit following the general election had a positive impact on demand, especially in the residential development category.

“The latest survey pointed to a modest degree of pressure on supply chain capacity, with lead-times from vendors lengthening slightly despite a drop in purchasing volumes at the start of 2020. That said, sub-contractor availability improved for the first time since last September and at the fastest pace for three-and-a-half years.

“Average cost burdens increased at a robust and accelerated pace in January. The latest rise was the sharpest since July 2019. Survey respondents commented on higher fuel and haulage costs, alongside increased prices for imported construction inputs.”