RedRock Construction Industry Outlook – February 2019

A change in optimism from the end of last year

Residential house building remains the best performing sector in the latest lacklustre update on construction industry activity 

For those who regularly read our construction industry blogs, there can be no doubt that 2018 was a year of ups and downs. Most industry players and stakeholders from the wider economy have probably had their fingers crossed in the hope that 2019 might shape up to be a more consistent year.  Unfortunately, February’s construction output figures do not seem to be giving that impression.

The latest IHS Markit/CIPS UK Construction Output survey published on 4th February has shown output figures to be at a low not seen for nearly a year, in contrast to the tentative optimism that we saw in last month’s data.

The PMI index had a score of just 50.6, down from the 52.8 recorded in the previous month, indicating a marked drop in activity from the previous month. Another cause for concern was that the index was below forecast expectations of 52.6.

The Guardian Newspaper cited this as a ‘significant slow-down’ in growth, and the commentary accompanying the survey from IHS Markit/CIPS pointed towards a ‘loss of momentum’. This is probably not what most stakeholders in the industry want to hear.

New business confidence and prospects for employment

New business levels also experienced an eight month low. Respondents reported that many clients were taking a ‘wait and see’ approach to major projects which in turn was having a direct affect on employment with some projects being delayed. The feedback from respondents indicated the slowest expansion of construction employment figures for two and a half years.

The individual sectors

All three of the major construction sectors; Commercial, Civil engineering and Residential, saw weaker growth than last month.

Residential work was the strongest of the three (despite being described by the IHS Markit/CIPS commentary as ‘modest’).

Civil engineering saw a minor increase and Commercial construction was the worst performing area with a decline in commercial projects (for the first time in 10 months). This sector is most likely to be affected by a general lack of confidence in the British economy and the geopolitical environment, which still persists whilst the country awaits the outcome of the Brexit negotiations.

Residential new builds remained the strongest sector

There is no doubt that the UK needs more housing so it is positive that this sector continued to see growth, albeit less robustly than recently. The government’s Help to Buy scheme has supported the number of home purchasers in the market which in turn is likely to have had a positive impact on residential building projects going ahead.

What can we conclude?

The index is above 50 so the industry is still (just) expanding rather than contracting. The figure has remained above 50 since the major weather problems experienced in early 2018 but this is the lowest level since then.

More positively, although the construction survey respondents were feeling less optimistic than at the end of last year, the majority still reported that they expect to see output to continue to rise as the year progresses. Inevitably, uncertainty over Brexit and the ongoing fears that there may be a hard Brexit were the most commonly cited reason for projects awaiting final approval. Until this issue is resolved and the construction industry has a clear idea of the way forward, the uncertainty is likely to remain.

Looking back on last year, we know that individual ups and downs are not necessarily indicative of a consistent downwards trend. We continue to remain busy and will monitor developments in the industry closely over the coming months.

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