Ongoing political and Brexit uncertainty continues to be bad news for the construction industry, with the latest PMI figures showing a further steep decline in construction output and subdued business confidence for the year ahead.
The IHS Markit / CIPS UK construction PMI report for October found that:
- Civil engineering declines at fastest pace since October 2009;
- New orders and employment continue to decrease;
- Business expectations for the year ahead remain subdued.
October data pointed to a sustained decline in UK construction output, with overall volumes of work falling for the sixth consecutive month. The latest survey also revealed a sharp drop in new work, although the rate of contraction was the slowest for three months.
Meanwhile, construction companies continued to reduce their workforce numbers in October, which was linked to weak order books and concerns about their near-term business outlook.
At 44.2 in October, the headline seasonally adjusted IHS Markit/CIPS UK Construction Total Activity Index again registered below the crucial 50.0 no-change threshold. The latest reading was up from 43.3 during the previous month, but still close to the ten-year low seen in June (43.1).
Construction companies noted that client demand remained subdued in response to domestic political uncertainty and the economic backdrop. In some cases, survey respondents noted that unusually wet weather in October had acted as an additional headwind to construction output.
Lower volumes of work were recorded across all three broad categories of activity. Civil engineering was the worst performing area, with business activity falling at the sharpest pace since October 2009.
House building also decreased at a faster rate in October. Latest data pointed to the greatest drop in residential work for over three years. At the same time, commercial construction fell for the tenth month running, but at the slowest rate since May.
New orders dropped for the seventh month in a row during October, but the rate of decline was the least marked since July.
Construction companies noted that clients continued to defer decision-making on new projects in response to political uncertainty and concerns about the economic outlook. Survey respondents also suggested that intense competition for new work had resulted in more widespread price discounting to secure contract awards.
Softer demand conditions and a lack of new work to replace completed projects resulted in another fall in staffing levels across the construction sector. Employment numbers have declined in each month since April, which survey respondents mainly attributed to the non-replacement of voluntary leavers.
Meanwhile, business optimism towards the year-ahead outlook for construction work remained among the weakest seen since 2012. Some construction firms noted that contract awards related to large-scale civil engineering projects had the potential to boost workloads in the next 12 months, although political uncertainty continued to cloud the outlook.
Tim Moore, economics associate director at IHS Markit, said: “UK construction companies experienced a downturn in business performance during October as political uncertainty and subdued economic conditions again combined to hold back sales. New orders have fallen in each month since April, which is the most prolonged period of decline recorded for more than six years.”
Duncan Brock, group director at the Chartered Institute of Procurement & Supply, said: "To say these figures are disappointing is a big understatement. Given that the next political hurdle is December’s general election, all eyes will be on the new administration and clear direction, because at the moment there is little insight into what could possibly pull the sector out of its ditch."
Jan Crosby, UK head of infrastructure, building and construction at KPMG, said: “While the sector has contracted at the slowest rate in three months, it’s widely anticipated that the remainder of the year is likely to be as lacklustre as recent months - characterised by stalled activity, dampened confidence and a ‘wait-and-see’ approach to new work.
“There had been pockets of optimism in the run up to October 31, largely because people were looking forward to some form of clarity around the future of the sector, but Brexit uncertainty has returned once more, coupled with a general election to boot. Many clients are likely to hold off until next year before committing to any large-scale projects in the hope they can make more informed decisions. For now, it’s a case of sitting tight.”
Mark Robinson, Scape Group chief executive, said: “Today’s data paints an even gloomier picture for construction bosses after an already difficult year. British building has largely been put on hold while government gets its ducks in a row, but as our EU exit date continues to be pushed back we cannot continue to stand by and watch the industry shrink. Ahead of the upcoming general election we can expect to see party campaigns that are dominated by Brexit ideology, but I urge leaders to consider policies that can get British businesses moving again. We need certainty about the future and a commitment to invest in our public services and infrastructure.”