U.K. construction sector activity losses momentum in August, PMI index remains below 50

U.K. construction sector sees loss of momentum in August, led by the sharpest reduction in new work since March 2009. The headline seasonally adjusted IHS Markit/CIPS U.K. construction total activity index dropped to 45 in August from July’s 45.3. The index has been below the 50 no-change threshold for the fourth straight month. Lower volumes of construction output were linked to deteriorating order books and a lack of new projects to replace completed contracts.

All three broad categories of construction work dropped in August, led by commercial building. Survey respondents continued to note that Brexit-related uncertainty had encouraged risk aversion and tighter budget setting among clients. Civil engineering activity also fell at a comparatively sharp rate in August. On the contrary, house building dropped just a bit and the pace of fall was the least marked since the downturn started in June.

All three broad categories of construction work dropped in August, led by commercial building. Survey respondents continued to note that Brexit-related uncertainty had encouraged risk aversion and tighter budge setting among clients.

Civil engineering activity also dropped at a relatively sharp pace during August. In contrast, house building fell only slightly and the rate of decline was the least marked since the downturn began in June.

New orders received by construction companies have fallen in each month since April. Latest data hinted at a sharp fall in new work, with the pace of contraction the most rapid since March 2009. Anecdotal evidence implied that soft demand conditions had led to a lack of tender opportunities and solid competition for new work, especially in the commercial sub-sector.

In spite of a sustained reduction in new orders, employment trends were comparatively resilient in August. The latest survey indicated towards just a marginal fall in staffing levels, with the pace of fall the slowest since the downturn in payroll numbers started in April. Some construction firms noted that tight labor market conditions had encouraged the retention of skilled staff, with any cuts to payroll figures achieved through the non-replacement of voluntary leavers.

Input purchasing dropped for the fifth straight month in August, which represents the longest period of fall since the first half of 2013. Weaker demand for construction products and materials aided in easing pressure on supply chains, with delivery delays from vendors among the least widespread for three years. In the meantime, input cost inflation eased to its lowest since March 2016.

In the meantime, construction firms indicated a slide in business optimism for the second straight month in August, with the degree of positive sentiment the softest since December 2008. Concerns regarding the business outlook were overwhelmingly linked to domestic political uncertainty and a corresponding fall in client spending.