Activity in Britain's construction sector signalled another loss of momentum in June as business activity expanded at the weakest pace for nine months.
The latest monthly PMI® data for June also showed new orders increased to the smallest extent since last October.
Worries about the near-term economic outlook led to a sharp decline in business expectations for the year ahead with June data indicating growth projections are now the least upbeat since July 2020.
The S&P Global/CIPS UK Construction Purchasing Managers’ Index® (PMI®) – which measures month-on-month changes in total industry activity – was 52.6 in June, down from 56.4 in May.
The index, which measures month-on-month changes in total industry activity, registered above the 50.0 no-change mark for the 17th consecutive month.
The latest reading signalled only a moderate increase in construction output and the slowest rate of expansion since September 2021.
House building was the weakest-performing area of construction activity for the fourth month running in June. The latest index reading of 49.3 signalled an overall downturn in residential work for the first time since May 2020.
Civil engineering was the most resilient sub-sector - index at 54.3, down only slightly from 55.5 in May.
A similarly strong increase in business activity was seen in the commercial sector, but the rate of growth eased sharply since May to the slowest so far in 2022 - index at 54.3, down from 59.8.
June data pointed to a solid rise in total new orders, but the rate of expansion softened to its weakest since October 2021. Some construction companies noted a lack of new work to replace completed projects due to economic uncertainty and inflation concerns.
Efforts to boost capacity in response to greater overall workloads contributed to another robust rise in staffing numbers during June. Job creation has been recorded in each month since February 2021.
Survey respondents once again commented on shortages of candidates to fill vacancies, despite higher wage offers.
Suppliers' delivery times lengthened again in June, but the downturn in performance remained less marked than that seen in the first quarter of 2022. Staff shortages and a lack of transport availability were the most commonly cited reasons for longer wait times for construction products and materials.
Around 71% of the survey panel reported higher purchasing prices in June, while only 1% signalled a reduction. The resulting index signalled a rapid pace of cost inflation that was slightly faster than in May, albeit still below the survey record high seen in June 2021.
Higher prices paid mostly reflected rising energy, fuel and transportation costs, according to survey respondents.
Looking ahead, around 36% of construction companies anticipate a rise in business activity, compared to 17% that expect a decline.
Tim Moore, economics director at S&P Global Market Intelligence, which compiles the survey said: "The gloomy UK business outlook and worsening consumer demand due to the cost of living crisis combined to put the brakes on construction growth in June.
"Construction companies appear braced for a difficult second half of the year as new order growth and business activity expectations fell again in June, reflecting inflation concerns, higher interest rates and less favourable domestic economic conditions. Measured overall, the degree of optimism across the construction sector is now the lowest seen since July 2020."
Mark Robinson, group chief executive of public sector procurement expert SCAPE, said: “A third consecutive month of output decline is confirmation of the impact that rising material costs and economic pressures are having on the industry’s health. This is a concern not just for the sector, but for the performance of the wider UK economy as it continues to navigate through these uncertain times.
“As we hit the peak summer season, contractors remain well aware of the bigger picture at play. Record-high inflation levels remain a threat to future developments at a time when new regenerative infrastructure that empowers local communities is needed to help drive the Levelling Up agenda forward.”
Max Jones, director in Lloyds Bank’s infrastructure and construction team, said: “The data shows that while contractors are facing one economic reality, the impact may not be shared equally. Where some contractors have a healthy pipeline of work to cushion the impact of the inflationary environment, others may be struggling and have no such luxury. In addition, while some firms can pass on the cost of stockpiled materials, others will find profits squeezed as they source materials at today’s prices, having priced up projects earlier in the year.”
Joe Sullivan, partner at MHA, believes the full inflationary effects of the war in Ukraine have now worked their way through the system, pushing more companies into insolvency but that supply constraints will stop house prices falling dramatically.
“In recent months we had seen material prices start to level off, but we’re now seeing the full effects of the war in Ukraine work their way through the system, driving up prices and ensuring we continue at these price levels for some time. Although the war began on 24 February, it takes time for the range of effects to work their way through. Together with these input cost increases, further shortages of raw materials like timber and manufactured goods such as generator components are behind the growing number of insolvencies in the construction sector.”
He added: “Further wage increases are inevitable. Contractors are under pressure not only to maintain their current head count for existing work but to retain the individuals with the appropriate skills necessary for opportunities available for tender.”
PMI data was collected between June 13-29.