UK construction growth slowdown in July

Construction eased to an 11-month low last month amid weakness in commercial building

UK construction companies recorded another growth slowdown last month, reflecting lower volumes of commercial building and a softer expansion of housing activity, according to the latest IHS Markit/CIPS UK Construction Purchasing Managers’ Index (PMI) survey, which also revealed one of the sharpest rises in construction materials prices since the first half of 2011.

Adjusted for seasonal influences, the UK Construction PMI dropped from 54.8 in June to 51.9 in July, signalling the weakest construction performance since August 2016. The latest reading was below the long-run survey average of 54.5, pointing to only a moderate pace of business activity growth.

A lower level of commercial construction was a key factor holding back overall business activity growth in July, and although only modest, the reduction in commercial activity was the fastest for 12 months. A number of survey respondents cited delays in decision-making by clients, linked to worries about the economic outlook and heightened political uncertainty.

Residential building remained the strongest performing category of activity in July, although the latest rise was the slowest for three months. The only upturn in output growth was recorded in the civil engineering sector.

IHS Markit/CIPS said construction firms commented on greater reluctance to commit to new projects among clients in July, with weaker demand leading to an overall reduction in new business volumes for the first time since the post-referendum rebound began in September 2016.

And although construction firms remained upbeat about their growth prospects, the degree of optimism was the lowest since July 2016, which was attributed to heightened economic uncertainty and subdued confidence among clients.

Tim Moore, associate director at IHS Markit and author of the IHS Markit/CIPS UK Construction PMI, said: ‘July data reveal a growth slowdown in the UK construction sector, mainly driven by lower volumes of commercial development and a loss of momentum for house building.

‘Worries about the economic outlook and heightened political uncertainty were key factors contributing to subdued demand. Construction firms reported that clients were more reluctant to spend and had opted to take longer in committing to new projects.’

He added: ‘The combination of weaker order books and sharply rising construction costs gives concern that an extended soft patch for the construction sector may be on the horizon.’