A gloomy mood continues to hang over the industry
Hesitancy persists for many major construction projects and developments
The ongoing lack of resolution to the UK’s Brexit woes is increasing fear that the UK economy as a whole is becoming subdued.
So it is no surprise that our update for construction activity in August reflects the general lack of forward momentum which is paralysing a number of different UK industries.
The latest Markit/CIPS Index figures have shown an overall fall in UK construction output for the third month in a row. Both civil engineering and commercial work continued to see a downturn and new orders experienced a notable drop which was attributed to a lack of action across the sector because of Brexit. House building also fell but not by as much as the shock result of last month.
The overall score for the index was 45.3 – better than last month but well off the 50.0 which indicates that the industry is holding steady (or expanding when above that level).
Commentary from Markit indicated that analysts are not anticipating an imminent turnaround, and that a downward trajectory is likely to continue.
The survey also noted that the situation may be exacerbated by the scheduled October VAT changes which will affect the cash flow that some construction firms have available to support new work.
Under current rules suppliers are required to account for their own VAT but in a new effort to avoid fraud the government is requiring some firms to make the payment direct to HMRC.
Further downbeat news from the UK’s mineral producers
Meanwhile another survey issued in August also points to a creeping slowdown across the industry.
The Mineral Products Association has recently published its own data for the first half of 2019 for the aggregates market; crushed rock, sand, gravel, asphalt and ready-mixed concrete (RMC).
These raw materials are used by the construction industry across all sectors, so increases or decreases in demand provide a good guide to the level of activity across the board.
Sales volumes of aggregates in the first half of 2019 were 1.9% lower than the same period last year, indicating a reduction in demand for these materials. As the MPA points out – these heavy materials tend to be used in the early stages of construction projects so decreased demand indicates that projects are not getting started.
Only mortar sales, which are more closely linked to house building, saw a rise at 1.4% higher in the first half of the year compared to the same period in 2018. As we have seen in our blogs this year, house building has been the one sector that has bucked the downward trend when compared to the civil engineering and commercial sectors, although this has not been the case over the last two months.
How are construction firms feeling?
The Guardian has looked at a series of different industry sectors in the UK to see how a possible recession plus the Brexit effect are impacting on day to day commercial activity.
In the construction sector they spoke to a building firm in Sutton in South London which carries out renovations and loft conversions and has 6 office staff and 25 onsite contractors. The article is well worth a read for an on-the-ground perspective.
This company is looking to diversify its activities in order to weather a possible recession but one of their most pressing issues is the uncertainty about European workers’ future status following Brexit. This has led to many of their Eastern European workers returning home – particularly to Poland where the economy is relatively strong.
The lack of clarity over the future status of European construction professionals who want to work in the UK continues to be a problem for the industry which may find it increasingly difficult to recruit skilled workers for a range of construction requirements.
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