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A worrying time for housebuilding

Home » A worrying time for housebuilding Published: 10th April 2017 This Article was Written by: Richard Furlong - City Surveys Group

The monthly Markit/CIPS Construction Purchasing Manager’s Index (PMI) was published last week, and with it signs of the long-anticipated post-Brexit slowdown in construction growth.

Luckily, the dip was small with the seasonally-adjusted PMI for March dropping from 52.5 (February) to 52.2. The construction industry defied the European Union Referendum results last summer by staying buoyant but the March figures showed the slowest overall growth in construction output across all sectors – commercial, house building and civil engineering.

The dip in output matches that of the manufacturing sector which also suffered a drop in March (54.2 from 54.5). Some economists have warned that this weak start to the year could spell a tough few months ahead for the UK.

However, survey respondents were optimistic about the future of construction in 2017, believing the drop to be but a blip on the radar. For example, building firms returned the second highest positive response in 15 months when questioned about their expectation of work over the next twelve months.

Goodwill aside, the statistics cannot be ignored and recent construction PMI figures have been at their lowest since the second quarter of 2013, indicating there could be more (or less) at work here than just defiance in the face of Brexit.

Unfortunately, the slowdown in house building outweighed any gains made by activity in commercial and civil engineering during March, undermining the fact that it was the strongest month of 2017 so far for civils projects.

Historically, Markit have linked a slowdown in house building to a stagnation in housing starts – an alarming indicator given the current UK housing crisis.

New business continued to languish too. Unchanged from the four-month low recorded in February, respondents blamed ever-tightening budgets, difficult in obtaining planning permission and client frugality as reasons for the continuing trend.   

Opportunities for new business, however, are numerous with respondents reporting an overall increase in tender invitations. This had an overall positive impact on respondents’ outlook for the industry over the coming twelve months. Almost half of those surveyed expect a rise in construction activity for the coming year, as compared to just 9% expecting a decline.

Difficulties anticipated include problems in recruiting labour for contracts plus the heightened costs of materials. Employment numbers continued to increase but new job creation fell to a three month low – possibly so that current long-term vacancies can be filled first.

Senior economist Tim Moore, author of the Markit/CIPS Construction PMI, said: “UK construction firms experienced a growth slowdown in March, with the loss of momentum centred on house-building. A weaker trend for residential work has been reported throughout 2017 so far, which provides an indication that the cooling UK housing market has started to act as a drag on the construction sector.”

“Civil engineering projects were the construction sector’s main growth engine in March, driven by rising infrastructure spending and a strong pipeline of new work throughout the UK.”

It was to be expected, then, that a general slowdown in the industry would bring a slowdown of purchasing activity too, however, it’s worth noting that this is only the second dip since September 2016.

Duncan Brock, speaking on behalf of the Chartered Institute of Procurement & Supply, said: “Where the housing sector acted as the main engine of growth over the last four years, this month it was slower and stuttering, while overall purchasing activity in the construction sector was disappointingly tame, shackled by a lack of new orders and rising costs.

“Pressure on suppliers remained intense, as they battled against lower stocks and made greater efforts to fight the pincer movement of a shortage in some materials and the continued force of higher global commodity prices.”