Industry

03 JAN 2020

CONSTRUCTION OUTPUT SUFFERS FURTHER SHARP DECLINE IN DECEMBER

Construction output suffered another sharp decline in December, with a downturn persisting across all three broad categories of activity, according to the latest PMI figures from IHS Markit/CIPS.

The latest figures saw the sharpest fall in civil engineering activity since March 2009, new business decreased for the ninth month in a row, though, more positively, input cost inflation eased to its lowest since February 2010.

At 44.4 in December, down from 45.3 in November, the headline seasonally adjusted IHS Markit/CIPS UK 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.

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. 

Although political uncertainty and subdued client demand ahead of the general election were cited as major factors in the latest survey, construction companies indicated that their optimism towards the year-ahead business outlook rebounded to a nine-month high, with a number of firms suggesting that greater clarity in relation to Brexit had the potential to boost order books in 2020.

Tim Moore, economics associate director at IHS Markit, 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.

"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."

Duncan Brock, group director at the Chartered Institute of Procurement & Supply, said: "The construction sector crumbled again in December under the weight of Brexit and political uncertainty as pipelines of work continued to worsen and new orders dropped for the ninth consecutive month.

"As the general election drew near, construction firms saw a spike in confidence believing indecision and political deadlock would shortly come to an end. However, the embedded frailties in the sector are laid out for all to see.

"Construction companies are still struggling to fill the skills gap left by the last recession and have had a bumpy ride since the referendum in 2016. It may take years to salvage the losses of the last three years, even if all obstacles are magically removed from the sector’s path to recovery. Whilst suppliers’ delivery times are on the verge of improving and input price inflation slowed to its lowest level since 2010, this will be cold comfort as the sector continues with one of its worst overall performances in the last ten years."

Jan Crosby, UK head of infrastructure, building and construction at KPMG, said: “As we start the new year there’s not much to shout about as firms continue to feel the effects of a drawn-out soft patch. As Brexit continues to be front of mind across the construction sector, it looks like the fog won’t lift until we’re well into this year. At that point contractors will hope to see evidence of the large-scale projects pledged in manifestos and the recent national infrastructure strategy announcement becoming a reality. That said, the dramatic fall in civil engineering won’t fill them with much hope at this stage.”

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