UK construction activity continued to shrink in August but the signs suggest that the industry may now be stabilising from the hiatus caused by the EU referendum and the initial shock impact of its result.
The latest monthly survey of construction industry purchasing managers indicates a sustained reduction in activity during August, but at a softer rate than that seen in July, which was a seven-year record low.
New order volumes moved closer to stabilisation, with the latest reduction the least marked since May, the survey found. This contributed to a renewed rise in staffing levels across the construction sector and a rebound in business expectations for the next 12 months.
However, the weakening of the pound has contributed to a further steep acceleration in input cost inflation.
At 49.2 in August 2016, the seasonally adjusted Markit/CIPS UK Construction Purchasing Managers’ Index (PMI) bounced back closer to the 50.0 no-change threshold.
By comparison, it was down at 45.9 in July and 46.0 in June.
Reports from survey respondents suggested that Brexit uncertainty continued to act as a brake on the construction sector during August, especially for house-building and commercial work. However, a number of firms noted that sales volumes had been more resilient than expected.
Some panel members also commented on signs of a rebound in client confidence from the lows seen earlier this summer. Reflecting this, latest data highlighted that incoming new work decreased at the slowest pace since May.
Signs of stability resulted in a marginal expansion of staffing levels across the sector in August, although subcontractor usage continued to decrease, and rates charged by subcontractors rose at their second-slowest pace since June 2013.
Tim Moore, senior economist at Markit and author of the Markit/CIPS Construction PMI, said: “The downturn in UK construction activity has eased considerably since July, primarily helped by a much slower decline in commercial building. Construction firms cited a nascent recovery in client confidence since the EU referendum result and a relatively steady flow of invitations to tender in August.
“However, the latest survey indicates only a partial move towards stabilisation, rather than a return to business as usual across the construction sector. There were still widespread reports that Brexit uncertainty had dampened demand and slowed progress on planned developments, especially in relation to large projects. As a result, total new order volumes continued to fall during August, which stands in contrast to the three-year run of sustained growth seen prior to May 2016.
“Despite another month of reduced output, the latest figures can be viewed as welcome news overall after a challenging summer for the construction sector. The move towards stabilisation chimes with the more upbeat UK manufacturing PMI data for August, and provides hope that the near-term fallout from Brexit uncertainty will prove less severe than feared.”
This article was published on 2 Sep 2016 (last updated on 2 Sep 2016).