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Industry 'stuck in a rut' after difficult month, warns PMI survey

Construction activity edged up last month but fears have been voiced that much of the industry is “stuck in a rut”. 

The Markit / CIPS construction PMI index came in at 50.8 in October, up from 48.1 in September, as a jump in housebuilding offset a fall in commercial and civils work. 

“Greater housebuilding was the sole bright spot in an otherwise difficult month for the construction sector,” said IHS Markit associate director Tim Moore.

But he added: “Sustained declines in civil engineering and commercial activity meant that large areas of the building industry have become stuck in a rut.”

A figure above 50.0 shows the industry is expanding. The September reading represented the first contraction in activity for 13 months.

October’s marginal upturn was led by a rise in housing activity, up to 53.5 from 53.1, which offset slides in commercial and civils work, which were recorded at 49.3 and 48.8 respectively.

Activity in the commercial sector has now fallen for four months in a row, but civil engineering remains the worst-performing area of work, with firms blaming a lack of big-ticket projects to replace completed civils contracts.

Last week the ONS released output figures for July to September that showed the industry was technically in a recession.

Looking ahead, Markit / CIPS expressed little optimism that activity will pick up to hit its post-crisis PMI trend of 54.7.

Construction firms’ confidence in business activity increasing over the next 12 months dropped to its weakest level in almost five years in the October survey. 

Respondents cited weak demand and clients’ fragile confidence as a result of economic and political uncertainty.

Mr Moore added: “Reduced tender opportunities and fragile demand are placing a dark cloud over the near-term outlook.

“October survey data indicated that UK construction companies are now the least confident about their forthcoming workloads since December 2012.”

There is also concern that housebuilding, which has served to bolster recent output figures, could also weaken as “renewed apprehension about the durability of housebuilding performance, which has been achieved against a backdrop of sustained policy support and ultra-low interest rates,” according to Mr Moore.

However, Turner & Townsend head of commercial services David Whysall said: “The PMI figures highlight a decline in new infrastructure contracts in recent months, but it’s important to recognise that there is a more positive long-term outlook.

“While there may be a lack of shovel-ready projects now, the longer-term pipeline is buoyant with a potential £500bn to be invested into UK infrastructure projects over the next decade.”

Lloyds Bank Commercial Banking director for construction Mike Chappel said that while the industry is facing challenges, its recent experience has served to prepare it to overcome them.

“Firms continue to focus on bidding discipline in an effort to avoid a repeat of the issues that plagued the sector after the financial crisis.

“Many contract cycles are now much shorter, reducing risk and hopefully putting the industry on a firmer footing in the face of the ongoing uncertainty.”

This uncertainty has contributed to employment numbers increasing at one of the slowest rates in the past four years.

Contractors also faced extra pressure from a sharp rise in input prices last month.

Constuction Products Association economics director Professor Noble Francis explains: ”In terms of costs, the average pre-tax margin of the top 10 UK contractors is already -0.5%, negative margins, so rising costs will be an added concern for construction firms outside of house building as activity continues to decline.”

The rate of inflation has come down from the six-year peak seen at the start of 2017.

 

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