Construction still weakening
amid political indecision
7th January 2020

Construction output fell for the eighth consecutive month in December, as spenders held their breath ahead of the general election, with both commercial and housebuilding showing decline though civil was hardest hit, according to the latest IHS Markit/CIPS report.

December data pointed to another sharp reduction in construction output, with a downturn persisting across all three broad categories of activity, the report continues. Survey respondents attributed the latest drop in their workloads to political uncertainty and subdued client demand ahead of the general election. At 44.4 in December, down from 45.3 in November, the headline seasonally adjusted Construction Total Activity Index registered below the crucial 50.0 no-change value for the eighth consecutive month. The current period of falling business activity across the construction sector is the longest recorded by the survey for almost a decade.

Civil engineering was by far the worst-performing category of construction in December, with activity falling at the fastest pace since March 2009. Anecdotal evidence suggested that political indecision and delays with contract awards for new projects had led to falling business activity. Latest data also revealed a sharp drop in commercial work, which was partly attributed to clients opting to postpone spending decisions ahead of the general election.

Meanwhile, house building dropped for the seventh month running in December, but the rate of decline was only modest. Construction companies recorded a marked reduction in new business volumes during December, although the pace of contraction remained less severe than the ten-year record seen in August.

The latest survey also pointed to the softest decline in staffing numbers for four months. Where a drop in employment levels was reported, survey respondents often cited the non-replacement of voluntary leavers amid a lack of work to replace completed projects. A reduced pipeline of incoming new business led to falling demand for construction products and materials at the end of 2019. A robust and accelerated decline in input buying across the construction sector helped to alleviate some supply chain bottlenecks. As a result, vendor lead times lengthened to the least marked extent since September 2010. Sluggish demand for construction inputs acted as a brake on pricing among suppliers in December. The latest increase in overall purchasing costs was only modest and the weakest recorded by the survey for almost ten years.

In contrast to the subdued output trends reported during December, construction companies indicated that their optimism towards the year-ahead business outlook rebounded to a nine-month high. A number of firms suggested that greater clarity in relation to Brexit had the potential to boost order books in 2020.

Tim Moore, Economics Associate Director at IHS Markit, which compiles the survey, said: “December data suggested that the UK construction sector limped through the final quarter of 2019, with output falling in all three major categories of work. Brexit uncertainty and spending delays ahead of the General Election were once again the most commonly cited factors highlighted by firms experiencing a drop in construction activity.

"Civil engineering saw its sharpest decline for more than ten years and remained the worst-performing area of construction work, followed by commercial development. House building has been the most resilient category in recent months, but still declined overall during December. "The forward-looking survey indicators provide some hope that the construction sector malaise will begin to recede in the coming months. Latest data indicated that the downturn in order books remains much less severe than the low point seen last August, which has already helped to bring employment numbers closer to stabilisation. "Moreover, construction companies signalled that business optimism has recovered to its strongest for nine months. Survey respondents cited confidence that a more predictable domestic political landscape and clarity on Brexit could deliver a much-needed boost to clients' willingness-to-spend in 2020."