Brexit uncertainty hits construction output in March
The latest UK Construction PMI has seen a marginal reduction in overall construction output during March. Another fall in commercial work and civil engineering activity more than offset a modest upturn in residential building. New business and employment numbers increased only slightly at the end of the first quarter, reflecting subdued underlying demand and delays to decision-making among clients.
Joe Hayes, Economist at IHS Markit, which compiles the survey: “Brexit-related uncertainty continued to generate indecisiveness, ultimately hitting order book volumes. Furthermore, strong competition for contracts was also reported by some panel members. The outlook was subsequently underwhelming by historical standards, with the unsettled political and economic environment keeping business confidence below its long-run average.
“Nevertheless, UK construction businesses ramped up their purchases of materials and other inputs, reflecting efforts to build safety stocks ahead of any potential Brexit-related disruptions. As such, supply chain constraints persisted and average input lead times lengthened once again.”
Duncan Brock, Group Director at the Chartered Institute of Procurement & Supply: “The situation in the UK construction sector was broadly unchanged from February, with PMI data posting a second consecutive month in contraction. The fault of this continuing inertia was placed squarely at the feet of Brexit.
“Not a small rise in job creation, optimism and new orders, nor resilient house building, were enough to buck the underlying downward trend in a sector suffering from client hesitation and consumer gloom. There was also intense competition from other sectors, with the stockpiling of supplies increasing delivery times again and creating raw material shortages, all adding to the pressures. Given the lack of warehousing space in the UK and the difficulties of storing bulky items, it is evident the sector has pressed the panic button in its attempt to keep projects moving during the political impasse.
“It is unlikely that next month will bring about any positive news given the challenges of a weaker UK economy, volatile pound and intense competition for new orders, as Brexit continues to cast a long shadow over the sector’s future.”
Adjusted for seasonal influences, the headline seasonally adjusted IHS Markit/CIPS UK Construction Total Activity Index posted 49.7, up fractionally from 49.5 in February but still below the 50.0 no-change threshold. The sustained decline in total construction activity represented the first back-to-back fall in output levels since August 2016.
Commercial construction was the worst performing area during the latest survey period, with business activity dropping to the greatest extent since March 2018. There were widespread reports that Brexit uncertainty and concerns about the domestic economic outlook had led to risk aversion among clients. Civil engineering activity also fell in March, although the rate of decline eased since February.
Residential building bucked the downward trend seen across the wider construction sector in March. The latest upturn in housing activity was only modest, but still the strongest seen so far in 2019.
Average cost burdens increased at a sharp and accelerated pace during March. The rate of input price inflation was the fastest since November 2018. Higher raw material costs were attributed to the weak sterling exchange rate and, in some cases, shortages of available items among regular suppliers.
Meanwhile, business optimism edged up from the four-month low seen during February. However, the degree of positivity remained much weaker than the long-term survey average. A number of construction companies noted that economic and political uncertainty had weighed on business expectations for the next 12 months.
