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Industry activity shrinks faster, but input prices fall

The UK construction industry contracted again last month, with activity falling at its fastest rate since records began. By Ben Cook

The CIPS/Markit UK construction purchasing managers’ index for November showed that new orders, industry output, employment, subcontractor usage and buying activity fell at the fastest rate since the survey began in April 1997.

But on a positive note for contractors, it also pointed to an end to input price inflation, as fuel and raw material costs fell.

The index – which uses the “50 benchmark”, with a figure below 50 representing contraction, and a figure above showing growth – stood at 31.8 in November, a survey low.

The reduction in industry activity was evident across all three of the monitored subsectors – housing, commercial engineering and civil engineering.

The worst hit subsector was housing, where building work “contracted severely”, while commercial and civil engineering posted “series-record” declines in activity.

The seasonally adjusted CIPS/Markit new orders index stood at 34.9 in November, reflecting a steep fall in the amount of new business being won.

Many of the purchasing executives surveyed as part of the research – which involves questionnaires being sent to representatives of 170 construction companies – reported that weak demand had intensified competition to secure new contracts.

As a result, enquiry rates, opportunities to tender and the success rates of submitted tenders were negatively affected.

The decline in new orders led to constructors reducing costs in line with falling workloads.

Consequently, staff numbers, subcontractor usage and purchases were cut sharply.

The seasonal employment index registered 31.2 as firms streamlined workforces.

Meanwhile, as subcontractor usage fell, so their availability rose, the quality of their work improved and rates charged to clients dropped at record rates.

Falling global demand exerted downward pressure on input prices – UK construction companies reported lower input costs for the first time in nearly 10 years. The CIPS/Markit input prices index was 44.7, another record low.

CIPS director of professional practice Roy Ayliffe said: “Purchasing managers reported significant falls in new orders, industry output and employment. There was, however, some relief for builders as input prices fell for the first time in nearly a decade. Coupled with this, the Bank of England’s interest rate cut helped bolster confidence.”

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