U.K. construction firms record decline in May, sharpest since March 2018

Construction firms in the U.K. indicated a renewed fall in total business activity in May. The headline seasonally adjusted IHS Markit/CIPS U.K. Construction Total Activity Index dropped to 48.6 in May from April’s 50.5. Today’s reading is the lowest since the snow-related downturn in construction output in March 2018. Commercial building was the softest area of construction activity in May, with output falling to the greatest degree since September 2017. Survey respondents widely commented that clients had opted to hold back on major spending decisions in response to Brexit uncertainty and concerns about the economic outlook.

May data also showed a fall in civil engineering activity for the fourth straight month. Construction companies cited constrained client budgets and a headwind from domestic political uncertainty. Residential work continued to grow in May, although at the softest pace for three months. Increased levels of house building have been seen in each month since February 2018.

The latest survey indicated towards a modest reduction in new orders seen by U.K. construction companies, with the rate of fall the steepest since March 2018. Construction companies reported solid competition, hesitancy among clients and longer sales conversion periods, largely reflecting soft demand conditions in May. Reduced workloads led to more cautious recruitment strategies and the non-replacement of departing staff in May. Therefore, the latest survey pointed to the sharpest fall in construction employment for six-and-a-half years.

Construction firms recorded another fall in their purchasing activity. Although just marginal, the latest reduction was the largest since September 2017. Supply chain pressures persisted in May, which led to another sharp lengthening of average lead times among vendors. There were a number of reports citing low stocks and shortages of materials.

Average input prices continued to rise in May, which was often linked to higher fuel and energy costs. Nevertheless, the overall rate of input price inflation slowed to the softest since June 2016. In the meantime construction companies hinted at a fall in business optimism to its softest since October 2018. Survey respondents widely cited concerns that domestic political and economic uncertainty would dampen business activity growth in the next 12 months.

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