U.K. construction output remains subdued in March, PMI index remains below 50

The recent weak patch for U.K. construction output continued in March. The headline seasonally adjusted IHS Markit/U.K. construction total activity index rose to 49.7 from February’s 49.5; however, it is still below the 50 no-change threshold. The sustained fall in total construction activity represented the first back-to-back drop in output levels since August 2016, although the pace of fall continued to be just marginal in March.

Commercial construction was the worst performing area in the latest survey period, with business activity falling to the greatest extent since March 2018. There were broad based reports that Brexit uncertainty and concerns regarding the domestic economic outlook had led to risk aversion among clients. Civil engineering activity also dropped in March, although the pace of fall eased since February.

Residential building bucked the downward trend seen throughout the broader construction sector in March. The latest upturn in housing activity was only modest, but still the strongest seen so far in 2019. March data showed a marginal rise in new work received by U.K. construction firms, with the pace of growth remaining weak in comparison to the long-run survey average. Survey respondents commented on intense competition for new work and a reluctance among clients to commit to major spending decisions in March. Mirroring the trend for new orders, latest data also underlined just a modest rise in staffing levels at U.K. construction firms.

Input purchasing recovered a bit in March, followed a fall in the previous survey period. Some companies commented on stock building attempts, as part of their Brexit preparations, which aided in stimulating purchasing activity. In the meantime, suppliers’ delivery times lengthened markedly in March, which survey respondents linked to low stocks and stretched capacity among vendors.

Average cost burdens surged and accelerated pace in March. The pace of input price inflation was the most rapid since November 2018. Higher raw material costs were linked to the subdued sterling exchange rate and, in some cases, shortages of available items among regular supplies.

In the meantime, business optimism rose from the four-month low seen in February. Nevertheless, the extent of positivity continued to be much weaker than the long-term survey average. Several construction firms noted that economic and political uncertainty had been a drag on business expectations for the next 12 months.

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