Buyers report sharpest activity drop since 2009

2 July 2019

Buyers have reported the sharpest drop in construction activity since April 2009, although the scale of the decline was still some way off that of the last financial crisis.

The IHS Markit/CIPS UK Construction Total Activity Index revealed a “sharp loss of momentum” for the sector in June.

Buyers attributed the decline to risk aversion among clients in response to heightened political and economic uncertainty.

The index stood at 43.1 in June (where 50.0 represents no change) and was down sharply from 48.6 in May.

House building, commercial work and civil engineering all saw declines, with house building experiencing its largest fall in three years.

Source: IHS Markit/CIPS UK Construction Total Activity Index

Commercial work remained the worst-performing area of construction with a drop in activity for the sixth consecutive month. Civil engineering also experienced its fastest rate of contraction since October 2009.

Total new work received by firms decreased for the third consecutive month in June.

Nonetheless, demand for construction staff was resilient, with only a marginal fall in workforce numbers in June.

Tim Moore, associate director at IHS Markit, which compiles the survey: “The latest survey reveals weakness across the board for the UK construction sector, with house building, commercial work and civil engineering activity all falling sharply in June. Delays to new projects in response to deepening political and economic uncertainty were the main reasons cited by construction companies for the fastest drop in total construction output since April 2009.

“While the scale of the downturn is in no way comparable that seen during the global financial crisis, the abrupt loss of momentum in 2019 has been the worst experienced across the sector for a decade. "Greater risk aversion has now spread to the residential building sub-sector, as concerns about the near-term demand outlook contributed to a reduction in housing activity for the first time in 17 months.”

"Worrying signals from the survey's forward-looking indicators make it almost impossible to sugarcoat the Construction PMI data in June. In particular, new orders dropped to the largest extent for just over 10 years, while demand for construction products and materials fell at the sharpest pace since the start of 2010.

"A continued lack of new work to replace completed projects illustrates the degree of urgency required from policymakers to help restore confidence and support the long-term health of the construction supply chain."  

Duncan Brock, group director at the Chartered Institute of Procurement & Supply added: “Purchasing activity and new orders dropped like a stone in June as the UK construction sector experienced its worst month for a decade.

"This abrupt change in the sector’s ability to ride the highs and lows of political uncertainty shows the impact has finally taken its toll as new orders dried up and larger contracts were delayed again. The pain of Brexit indecision was felt across all three sub-sectors but the previously resilient housing sector suffered the fastest drop in three years which is frankly worrying news.

"However, we are still a long way off the level of entrenchment seen in the last economic crisis, as payroll numbers remained relatively steady as any job cuts were just delays in replacing staff. But with the onslaught of indecision combined with a weakening global economy, this could easily turn into more months of contraction as future optimism remains subdued.

"A lack of clarity from policymakers has amplified the poor performance in June. Swift decision-making and a break in the political impasse hold the key to pulling the construction sector out of the quicksand."

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