Construction stabilises in August

The UK construction industry has improved since the output tumbled in the aftermath of the EU referendum.

Although August marked a third consecutive month of contraction in output, the Markit/CIPS UK Construction Purchasing Managers’ Index® (PMI®) was up to 49.2 from July’s 45.9.

This is higher than the 46.1 projected by the City economists.

Tim Moore, Senior Economist at Markit and author of the Markit/CIPS Construction PMI® , said:

“The downturn in UK construction activity has eased considerably since July, primarily helped by a much slower decline in commercial building.
Construction firms cited a nascent recovery in client confidence since the EU referendum result and a relatively steady flow of invitations to tender in August.

“However, the latest survey indicates only a partial move towards stabilisation, rather than a return to business as usual across the construction sector.
There were still widespread reports that Brexit uncertainty had dampened demand and slowed
progress on planned developments, especially in relation to large projects. As a result, total new order volumes continued to fall during August, which stands in contrast to the three-year run of sustained growth seen prior to May 2016.

“Despite another month of reduced output, the latest figures can be viewed as welcome news
overall after a challenging summer for the construction sector. The move towards stabilisation chimes with the more upbeat UK manufacturing PMI data for August, and provides hope that the near-term fallout from Brexit uncertainty will prove less severe than feared.”

David Noble, Group Chief Executive Officer at the Chartered Institute of Procurement & Supply, said:

“Purchasing costs went up at a rate not seen for half a decade, as the impact of the weak pound was felt by the construction sector. Firms reduced their purchasing volumes as a result, as new orders and activity continued to fall – though at a more moderate rate compared to last month. Costs for energy and raw materials such as steel and timber were highlighted as company margins were squeezed.

“Employment levels recovered to a modest degree, though at the second-slowest pace for three years. Some firms reported that they planned to increase staff numbers in hopeful anticipation of a surge in activity towards the end of the year. Business sentiment was moderately more positive than that seen in the  mmediate aftermath of the Brexit vote.

“After the shock of last month’s seven-year low in the overall index, the picture now is more about stabilisation than searing growth, as the sector remained in contraction. The housing sector continued its downward slide, but the drop in activity was much softer in August.”