UK construction sector decelerates in May; PMI falls to 51.2

Construction companies in the UK saw another difficult month in May. Growth in construction output slowed to the weakest in nearly three years, whereas incoming new work dropped for the first time since April 2013. According to the respondents of the survey, market conditions have slowed down and there are delays in client decisions before the EU referendum.

The seasonally adjusted Markit/CIPS UK Construction Purchasing Managers dropped in May to 51.2 from April’s 52. It is just above the threshold of 50. Reading for May hints at the overall weakness in the growth of business activity in nearly three years. The three major construction activity areas performed weakly in May. Residential building work grew at the slowest rate since early 2013. Meanwhile, commercial activity recorded the weakest growth in almost three years. Civil engineering was stagnant in May, making it the worst performing sub-category of activity for the second straight month, said Markit.

The data for May hinted at a severe decline in volumes of new order. This point towards a dull confidence amongst clients that is due to the increased uncertainty regarding the UK economic outlook. Furthermore, several companies have seen clients hesitant to place orders and start contracts until after the EU referendum in June.

Incoming new work reduced in May, contributing to cautious stock policies and purchase of input at construction companies in May. The recent survey shows that purchasing activity throughout the construction sector has stagnated. But employing new staff was maintained in May, three consecutive years of continuous hiring. The rise in payroll numbers was the most rapid since January. The construction firms attributed this to new project starts and high levels of orders-in-hand, noted Markit.

Meanwhile, construction companies witnessed a moderate slowdown in performance of suppliers, continuing the downtrend since September 2010. In May, input price inflation accelerated strongly; however, the recent increase in average cost burdens was slower than April’s.

Construction companies in the UK are optimistic about the overall outlook for 2016. More than half of the panellists project an increase in output. The extent of positivity increased just marginally since April. According to survey respondents, this is because of economic uncertainty and worries  that weaker conditions in the market will continue into H2 2016.