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The latest IHS Markit/CIPS Construction Purchasing Managers’ Index (PMI) reveals a difficult time for the construction industry throughout September 2017. The index dropped below the all-important indicator of 50 to 48.1 for September, denoting a steep decline in construction output and new orders for the month of September.
New work orders down
Survey respondents saw an overall lack of confidence and decreased risk appetite as the key reasons for falling new business, particularly in commercial construction and civil engineering. Political, market and economic uncertainty have led to fewer new infrastructure and commercial development projects, as well as longer budget approval lead times, as project instigators take a more risk averse approach in the face of market ambiguity.
House building increases, slowly
Once again, house building is the only area of growth in the sector, although this has slowed to the lowest for six months over concerns about future market conditions.
Input costs are on the rise, as imported materials cost more with a weaker Pound. This has continued to increase inflationary pressure on the sector, which now sits at a seven month high. These cost increases are being felt right across the supply chain.
David Johnson, founding director at Halo Financial, observed, “Market volatility and economic and political uncertainty have really taken their toll on the UK’s construction sector this month. The effects of a weaker Sterling have put pressure on suppliers and construction workers involved in current projects and the number of new orders. Sterling has responded by falling lower, amid concerns about these results as an indicator of UK economic health.”
“With continued uncertainty ahead, businesses in the sector need to assess potential risks now and in the future and look to address these with the right strategy. Taking into account currency exposure and its effects on profit margins is key in an uncertain economy; there are tools that can be used to minimise this and plan for future shocks.”
“These results have unfortunately further increased market uncertainty, as traders and investors worry about the state of the UK economy and the effects of Brexit.”
Brendan Sharkey, partner and head of construction and real estate at MHA MacIntyre Hudson,commented, “Economic uncertainty means less appetite for new projects and a longer and more difficult process for financing them, particularly in the commercial sector and for large-scale infrastructure projects. The sector could really do with a boost in confidence in the form of one or two large scale projects that will capture both governmental and public imaginations.”
“While there is less demand than there was around six months ago – again, owing to economic and political uncertainty – house building at the smaller end of the spectrum is still growing, albeit at a slower pace, and there is certainly work there for the immediate and near future as long as government support for projects such as Help to Buy continues.”