UK’s construction sector sees renewed drop in output levels in June, PMI drops to below 50

June’s data shows a renewed drop in output levels throughout the UK’s construction sector, led by a sharp drop in residential building and decline in commercial work for the first time since May 2013. The seasonally adjusted Markit/CIPS UK Construction PMI dropped to 46 in June from May’s 51.2.

It has fallen below the threshold of 50 for the first time since April 2013. June’s reading pointed towards the weakest performance for seven years; however, the contraction pace was slower than seen in 2009/2009 downturn.

Amongst the sub-category, residential construction performed the worst, with activity declining at the most rapid rate since December 2012. Civil engineering activity continued to be quite stable in June, whereas commercial building work witnessed a severe slowdown and recorded one of its weakest prints in six-and-a-half years.

Lower activity levels were connected to declining order books and a lack of new work to replace completed projects.  Several companies mentioned hesitancy amongst clients to begin new contracts in the run-up to the EU referendum, along with the current uncertainty regarding the general economic outlook. Incoming new work has dropped for two consecutive months. Furthermore, the latest drop was the sharpest since December 2012.

Construction companies in the UK reacted to the drop in client demand by lowering input purchases and putting greater caution in terms of staff recruitment. The drop in purchasing activity was the most rapid in nearly six-and-a-half years.

Numbers of employment continued to increase in June, albeit at the slowest pace in the last three years. Meanwhile, sub-contractor usage dropped slightly and prices charged by sub-contractors rose at the most decelerating pace since July 2013, noted Markit.

In spite of reduced input purchasing, supply chain pressures continued in June. Furthermore, average lead-times from vendors lengthened to the highest degree since the beginning of 2016. The latest survey, in the mean time, showed a decline in business confidence about the year-ahead outlook to the weakest since June 2013.