February data has highlighted a further loss of growth momentum across the UK construction sector, with output, new orders and employment all expanding at slower rates than at the start of 2016.
The headline seasonally adjusted Markit/CIPS UK Construction Purchasing Managers’ Index (PMI) registered 54.2 in February, down from 55.0 in January and the lowest since April 2015. Although still above the 50.0 value that separates expansion from contraction, the latest reading pointed to one of the weakest rises in construction output seen over the past two-and-a-half years.
For the first time since January 2013, residential building was the worst performing sub-category of construction output. Moreover, the latest rise in housing activity was the slowest recorded since June 2013. Growth of commercial building work also moderated in February, with the rate of expansion the softest since the election-related slowdown in May 2015.
Reports from survey respondents suggested that less favourable demand conditions and greater uncertainty about the economic outlook continued to act as a brake on the construction sector. Reflecting this, new business growth moderated for the third time in the past four months during February. The latest rise in overall volumes of new work was the slowest seen since April 2015.
While construction firms noted that client spending was still generally expanding, there were some reports that business confidence had moderated in February and weighed on clients’ willingness to commit to new projects. Softer output and new business growth resulted in weaker job creation across the UK construction sector during February.
The latest rise in staffing levels was the slowest recorded since August 2013.
Anecdotal evidence suggested that heightened uncertainty about the demand outlook had led to more subdued job hiring trends in February.
Reflecting this, the latest survey indicated that construction firms were the least confident about the 12-month business outlook since December 2014.
Tim Moore, senior economist at Markit and author of the Markit/CIPS Construction PMI, said: “UK construction firms remained in expansion mode during February, but a loss of momentum within the residential building sector meant that overall output growth was the weakest since April 2015. Aside from the pre-election slowdown last year, the latest upturn in construction output was the weakest for over-two and-a-half years.
“Survey respondents noted that underlying business conditions remained favourable, especially in relation to commercial building and infrastructure-related work, but some clients had been hesitant to commit to new projects so far in 2016. Reflecting this, new order growth weakened again and construction firms were the least optimistic about their year-ahead growth prospects since December 2014.
“What’s different this time around is that construction companies have cut back on employment growth in response to the uncertain business outlook. Net job creation eased to its lowest since August 2013, which contrasted with the robust hiring patterns seen throughout last year.
“At the same time, input buying rose at one of the weakest rates since mid-2013. More cautious purchasing strategies can be seen as another indication that construction firms are preparing for an extended period of softer growth this year.”
Commenting on the report, David Noble, Group chief executive officer at the Chartered Institute of Procurement & Supply, said: “The sector felt the pressure of challenging global economic conditions and softer demand growth as purchasing activity expanded at its weakest pace since April 2015. Suppliers’ delivery times got longer and some stock shortages added to their woes. The housing sector, which once led the way with a robust performance, offered a poor show – the weakest growth for just over two-and-a-half years. And, though overall growth was maintained, business confidence for the future was at its lowest since December 2014. The next few months will be critical to the understanding of whether this dampened optimism was justified and whether there are still more serious issues to be unearthed.”
