IHS Markit/CIPS survey sees construction lose momentum in June

Construction activity growth slowed during June from May’s 17- month high as construction saw weaker rises in new orders and employment and business optimism easing to its lowest so far in 2017 according to the latest IHS Markit/CIPS survey.

June data revealed weaker growth momentum across the UK construction sector, with business activity, new work and employment all expanding at slower rates than in May. Survey respondents commented on signs of renewed risk aversion among clients, reflecting concerns about the economic outlook and heightened political uncertainty. The latest survey also indicated that construction companies were the least optimistic

Softer growth momentum was recorded across all three broad categories of construction activity. Residential building continued to outperform commercial work and civil engineering in June. Moreover, the latest rise in housing activity was still the second-fastest since December 2015.

Reports from survey respondents suggested that a lack of new work to replace completed projects had weighed on construction growth in June. Latest data indicated that new order growth eased to its weakest since March. A number of firms cited delays in decision making among clients, partly linked to heightened economic uncertainty.

Tim Moore, Senior Economist at IHS Markit and author of the Markit/CIPS Construction PMI®, said: “The construction sector experienced a growth slowdown in June, largely reflecting weaker rises in commercial building and civil engineering activity. Residential construction work continued to increase at one of the fastest rates since the end of 2015.

“Despite a softer rise in construction output, the latest survey revealed that supply chain pressures were among the most intense since early-2015. June data also pointed to strong input price inflation, driven by resilient demand and upward pressure on costs imported construction materials.”

Duncan Brock, Director of Customer Relationships at the Chartered Institute of Procurement & Supply, said: “The construction sector’s confidence took a knock this month as optimism fell to its lowest reading in 2017 and clients became more restrained in placing new orders. Respondents cited continuing uncertainty in the run up to the election and Brexit negotiations for the hesitancy. But, the housing sector continued to have the most get-up-and-go with the second fastest rise since December 2015, leaving the other sectors lagging behind.

“While new business wins were less in evidence, demand for materials remained high as suppliers scrabbled to meet the need for a number of materials in short supply and their performance worsened as their delivery times lengthened. The availability of skilled workers still remained an issue, with the slowest rise in employment levels for three months as a lack of new orders translated into restricted levels of hiring.

“With some doubt edging into the psyche of the construction industry about positive trading conditions, the sector will be guarding against continuing higher input prices with another eye on the possibility of rising interest rates as well.”