By Daniel Hunter
February data pointed to a sharper slide in UK construction output, with the seasonally adjusted Markit/CIPS UK Construction Purchasing Managers’ Index (PMI) — which measures overall output in the sector — dropping to 46.8, from 48.7 during January.
The index has posted below the neutral 50.0 value in each of the past four months and the latest reading signalled the fastest pace of contraction since October 2009.
The marked fall in construction output reflected a return to declining levels of commercial building work and a sharp decrease in civil engineering activity. Commercial construction decreased at the steepest pace for just over three years, while the latest reduction in work on civil engineering projects was the fastest since October 2009. This offset an increase in housing activity in February, with the marginal expansion in residential building the first improvement since May 2012.
UK construction firms highlighted an ongoing deterioration in their new order inflows during the latest survey period. Lower levels of new work have been recorded in each month since last June, reflecting cuts to client budgets and intense competition for new work. Nonetheless, employment numbers rose fractionally in February, contrasting with the downward trend seen during the final three months of 2012.
Reduced new business volumes contributed to a further solid decline in purchasing activity at construction companies. Input buying has now fallen for nine consecutive months, which is the longest continuous period of decline since that seen in 2008-2010. Anecdotal evidence suggested that lower business activity and efforts to improve cash flow had both restricted purchasing activity.
Supplier delivery times lengthened again in February, with the current period of worsening vendor performance now stretching to two-and-a- half years. Some firms linked longer lead-times to lower stocks at suppliers. Softer demand for raw materials nonetheless contributed to a moderation in input price inflation in February. The latest rise in average cost burdens was the slowest since June 2012.
Looking ahead, construction companies (on balance) anticipate an expansion of business activity at their units over the next 12 months, with the degree of positive sentiment the strongest since last April. Survey respondents cited hopes that new sales and marketing strategies, alongside a general rise in new invitations to tender, will boost business activity over the year ahead.
“This is undoubtedly a dismal set of data for the UK construction sector, especially the sharp falls in commercial building work and civil engineering activity," Tim Moore, Senior Economist at Markit and author of the Markit/CIPS Construction PMI, said.
“With total output falling at the steepest pace for over three years, the latest PMI survey is confirmation that January’s construction decline was not entirely snow-related. Downward pressure on client budgets, alongside subdued public sector spending, again led to lower output levels and reduced new order inflows.
“The only exception to the overall output trend was a stabilisation in residential construction, with eight months of sustained decline ending in February. Moreover, construction companies cited new house building projects as an area having some potential to boost UK construction output over the next 12 months.”
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