By Daniel Hunter
October data highlighted another difficult month for the UK construction sector, with the latest survey showing a subdued trend in output levels alongside moderate reductions in new work and employment.
Adjusted for seasonal factors, the Markit/CIPS UK Construction Purchasing Managers’ Index (PMI) registered 50.9 in October, up from 49.5 in September but only fractionally above the 50.0 no- change value.
The latest reading was also much weaker than the average seen in the decade leading up to the global financial crisis in 2008 (56.3), thereby highlighting an ongoing subdued trend in output across the construction sector.
Higher levels of construction output were confined to civil engineering in October, with the sub-sector registering moderate growth for the second month running. Residential building activity was the weakest performing broad area of construction monitored by the survey, with output declining for the fifth successive month. Commercial activity also dropped in October, but at only a marginal pace.
The subdued trend in construction output during the latest survey period reflected an ongoing downturn in new business volumes. The current period of falling new order volumes is the longest since that seen during 2008/09, which respondents linked to squeezed budgets and worries about the economic outlook among clients.
A lack of new work to replace completed projects in turn resulted in a return to job shedding during October. Although much less marked than that seen in 2008/09, the latest fall in staffing levels was the fastest since August 2011. Sub-contractor usage also decreased at a solid pace in October, extending the current period of decline to three months.
Construction companies’ assessment of the year- ahead business outlook remained low in the context of the survey history. Reflecting this, at 56.2 in October, the index measuring business expectations was closer to the survey-record low seen four years ago (45.9) than the long-run series average (70.4). Construction firms mostly noted that shortages of new business, alongside lending constraints and lower budgets among clients, had led to relatively subdued business sentiment.
“October’s survey indicates an improved trend in UK construction output compared to the declines seen through the summer. However, the bigger picture remains bleak given ongoing falls in new orders alongside renewed job cuts across the sector over the month," Tim Moore, Senior Economist at Markit and author of the Markit/CIPS Construction PMI, said.
“Construction firms are seeing the most protracted period of new business losses since 2008/09, meaning an escalating shortage of work to replace completed projects.
"Reflecting this, the year-ahead business outlook was still relatively subdued during October, as survey respondents cited weak spending patterns and squeezed budgets among clients. Some construction firms also noted greater worries about competition for new work amid signs of over capacity in parts of the industry.”
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