Growth slows but subcontractor rates continue to rise

The latest Markit/CIPS UK Construction Purchasing Managers’ Index (PMI ) survey has found that business activity growth in the construction industry hit a 22-month low while April saw the sharpest increase in subcontractor charges since the survey began in 1997.

UK construction companies indicated a sharp loss of growth momentum in April, with output and new order expanding at the slowest rates since June 2013. A number of survey respondents suggested that uncertainty related to the forthcoming general election had contributed to delays in clients’ spending decisions.

However, construction sector job creation remained robust in April and there were widespread reports of worsening capacity pressures. This contributed to another drop in subcontractor availability and a corresponding increase in subcontractor pay rates, with the latest rise the fastest since the survey began in April 1997.

Tim Moore, senior economist at Markit and author of the PMI survey , said: “Not only does the UK Construction PMI survey indicate that output remained in growth territory during April, but the latest data signals ongoing strains on operating capacity.”

David Noble, group chief executive at the Chartered Institute of Procurement & Supply, said: “Subcontractors continue to be the winners in ongoing work, being in short supply and demanding higher rates for their labour – rising at the swiftest pace for almost 20 years. However, the sector continued to gear up and increase in-house staffing levels to meet the needs of higher levels of investment and to increase capacity and capability levels in supply chains.

At 54.2, down from 57.8 in March, the headline seasonally adjusted PMI dropped for the second month running and was the lowest for almost two years. However, the index remained above the 50.0 no-change value and signalled a solid overall pace of expansion.

Residential building activity was by far the best performing broad area of construction output during April, although even in this category the pace of expansion slipped to a 22-month low. Meanwhile, growth of commercial construction work was the least marked since August 2013.

Reports from survey respondents suggested that underlying conditions remained favourable, especially in the house building sector, but some clients had delayed spending decisions ahead of the general election.

Input cost inflation eased sharply to its lowest for just over two years. A number of firms noted that increased stocks at suppliers had helped alleviate some of the strain on materials availability and producer capacity.