Construction activity slows as housing weakens

A weaker housing sector has led to a slowdown in activity across the UK construction indsutry, according to the latest Markit/CIPS survey.

Data for March also pointed to only a marginal increase in new work, which contributed to slower employment growth and a slight decline in materials buying, Markit said.

The headline index dropped from 52.5 in February to 52.2 in March - where 50 separates growth from contraction - signalling the joint-slowest upturn in output since the current period of expansion began in September 2016.

“Softer growth primarily reflected a loss of momentum in housing activity, which offset a rebound in both commercial and civil engineering activity,” Markit said.

Construction companies noted that squeezed client budgets had acted as a brake on new business growth. There were also reports citing planning delays and what Markit called “greater cost consciousness among clients”.

Yet firms were reported to be “relatively upbeat” about their near-term prospects, and companies noted that reduced Brexit-related anxiety and a “resilient economic backdrop” had had a positive impact on new invitations to tender.

Almost half of the survey panel expected a rise in business activity during the year ahead, against 9% expecting a decline.

Tim Moore, senior economist at IHS Markit, said: “Business confidence was among the highest seen since the end of 2015, which construction companies linked to upcoming tender opportunities, plans for increased marketing expenditure and hopes of a sustained recovery in clients’ willingness to spend.”

Mike Chappell, global corporates managing director for construction at Lloyds Bank Commercial Banking, noted that civil engineering remained the star performer in the sector, thanks to a number of mega-projects in the works across the UK, some of which were given the green light before the EU referendum.

However he highlighted that with the triggering of Article 50 the most significant issue on the industry’s radar remains labour. “Almost 10% of UK construction workers are from the EU and in London that rises to a quarter. Contractors are therefore keen to understand what can be done to maintain access to this labour, otherwise they potentially face both increased costs and project delays.

“That said, in general terms larger construction firms are in better health than in previous years, largely because of more discipline when bidding for work and using civil engineering and services arms to offset cyclical dips in commercial activity. Many are therefore well-positioned to cope with the current headwinds.”