UK building projects put on hold as new orders continue to fall

New orders in the UK construction sector dropped further in November as political uncertainty put civil engineering and commercial building projects on hold, keeping overall activity in the industry firmly in contraction.

The IHS Markit/CIPS UK purchasing managers’ sub-index for construction new orders fell to 43.95 in November, from 44.61 the previous month. This was the eighth consecutive month of contraction and the longest phase of decline since 2013.

“Greater hesitancy among clients led to a decline in overall new work for the eighth consecutive month during November,” said Tim Moore, associate director at IHS Markit. “Construction companies reported a particularly sharp fall in demand for commercial projects amid a greater squeeze from domestic political uncertainty and delayed investment decisions.”

The lack of new work to replace completed contracts resulted in reduced business activity, according to the survey.

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Brexit uncertainty, an impending general election and wet weather kept the construction sector in its contraction hole

“Investor demand is brittle, new orders continue to decline at an alarming rate and many builders don’t have a sufficient pipeline of work to replace completed projects,” said Gareth Belsham, director of Naismiths, a property consultancy and surveyor.

Falling output

The overall construction PMI index rose to 45.3 in November, from 44.2 in October, but it was still below the 50 mark, which indicates a majority of businesses reporting falling output.

“Brexit uncertainty, an impending general election and wet weather all combined to keep the construction sector firmly in its contraction hole last month, with purchasing, output and new orders falling again,” said Duncan Brock, group director at the Chartered Institute of Procurement & Supply.

Civil engineering was the worst-performing category, followed by commercial building, while a slower decline in housing activity helped to moderate the overall drop in UK construction output.

The marginal increase in the housing PMI index to 48 in November from 45 in the previous month “comes as a relief”, said Prohad Khan, property economist at consultancy Capital Economics. But he stressed that “today’s result still shows a housebuilding sector in recession”.

Deteriorating

The construction figure came a day after the corresponding survey for manufacturing showed factory activity deteriorating in November as companies ran down their stocks and suffered from reduced domestic and foreign demand.

The PMI indices are a measure of the health of the construction sector ahead of the official output statistics.

The construction sector has been volatile throughout this year and weak since the UK voted to leave the EU in June 2016.

Between May 2016, the month before the Brexit referendum, and September 2019, the sector grew 8 per cent, according to separate data from the Office for National Statistics. The sector grew at three times that speed in the same period to May 2016.

Commercial building was particularly badly affected, with the real value of new work contracting by 1 per cent in the past three years, compared with a 20 per cent increase in the corresponding period before the EU referendum.

– Copyright The Financial Times Limited 2019