Business optimism rebounds to nine-month high
Construction output declines again in December but business optimism recovers after general election
WHILST December data pointed to another sharp reduction in construction output, with the downturn persisting across all three broad categories of activity, construction companies signalled that business optimism has recovered to its strongest for nine months, according to the latest seasonally adjusted IHS Markit/CIPS UK Construction Total Activity Index.
Survey respondents attributed the latest drop in workloads to political uncertainty and subdued client demand ahead of the general election. At 44.4 in December, down from 45.3 in November, the headline Activity Index registered below the crucial 50.0 no-change value for the eighth consecutive month, making the current period of falling business activity across the construction sector the longest recorded by the survey for almost a decade.
Civil engineering was by far the worst-performing category of construction in December, with activity falling at the fastest pace since March 2009. Anecdotal evidence suggested that political indecision and delays with contract awards for new projects had led to falling business activity.
Latest data also revealed a sharp drop in commercial work, which was partly attributed to clients opting to postpone spending decisions ahead of the general election. Meanwhile, house building dropped for the seventh month running in December, but the rate of decline was only modest.
Construction companies recorded a marked reduction in new business volumes during December, although the pace of contraction remained less severe than the 10-year record seen in August.
In contrast to the subdued output trends reported during December, construction companies indicated that their optimism towards the year-ahead business outlook rebounded to a nine-month high. A number of firms suggested that greater clarity in relation to Brexit had the potential to boost order books in 2020.
Tim Moore, economics associate director at IHS Markit, which compiles the survey, said: ‘December data suggested that the UK construction sector limped through the final quarter of 2019, with output falling in all three major categories of work. Brexit uncertainty and spending delays ahead of the general election were once again the most commonly cited factors highlighted by firms experiencing a drop in construction activity.’
On a more positive note, however, Mr Moore said: ‘The forward-looking survey indicators provide some hope that the construction sector malaise will begin to recede in the coming months. Latest data indicated that the downturn in order books remains much less severe than the low point seen last August.
‘Moreover, construction companies signalled that business optimism has recovered to its strongest for nine months. Survey respondents cited confidence that a more predictable domestic political landscape and clarity on Brexit could deliver a much-needed boost to clients’ willingness to spend in 2020.’