UK construction output declines for the first time since January 2021

·Business Reporter, Yahoo Finance UK
·3-min read
A construction worker at work in central London. UK construction fell in July
UK construction: Lower volumes of residential work and civil engineering activity offset a rise in the commercial segment. Photo: PA Media

UK construction output fell for the first time in 18 months in July, as lower volumes of residential work and civil engineering activity offset a rise in the commercial segment.

According to the S&P Global/CIPS UK construction purchasing managers’ index, last month’s reading came in at 48.9, down from 52.6 in June.

The index measures month-on-month changes in total industry activity, and the result was the first time it fell below the 50 no-change threshold since January 2021.

Although only marginal, the rate of decline was the fastest since May 2020.

Civil engineering was the worst-performing segment during the month, with business activity falling to the greatest extent since October 2020. Meanwhile, house building declined for the second month running, but the rate of contraction was only slight at 49.4.

Commercial work bucked the downturn seen elsewhere, coming in at 52.3 in July, although growth was the weakest for 18 months.

Read more: UK construction sector held back by residential slowdown

Survey respondents blamed reduced client demand from rising inflation, fragile consumer confidence and higher interest rates.

The July data showed an overall rise in new orders for the 26th consecutive month. However, the latest upturn in new business was notably weaker than seen on average in the first half of 2022.

As a result, some construction companies cited a lack of new projects to replace completed contracts.

The data also showed that employment numbers expanded at a robust and accelerated pace during the month. There were again many reports of difficulties filling vacancies and strong wage pressures.

Construction firms noted upward pressure on business expenses from higher energy, fuel and transport costs, but this was partly offset by some easing in commodity prices, especially for metals and timber.

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Around 22% of the survey panel reported longer lead times from suppliers in July, while 7% signalled an improvement.

Although still pointing to an overall downturn in vendor performance, the latest survey indicated that supplier delays were the least widespread since February 2020.

Business optimism remained subdued across the construction sector in July, with growth expectations well below those seen in the opening months of 2022.

That said, the degree of positive sentiment picked up slightly from June's 23-month low. Around 42% of the survey panel anticipate a rise in output during the year ahead, while only 15% forecast a decline. Recession concerns, the cost of living crisis and lower levels of consumer confidence were the most commonly cited factors affecting business expectations in July.

Read more: Interest rates: First-time buyers face paying 40% of salary in mortgage payments

"July data illustrated that cost of living pressures, higher interest rates and increasing recession risks for the UK economy are taking a toll on construction activity,” “Tim Moore, economics director at S&P Global Market Intelligence, said.

“Expectations for output growth in the next 12 months are far less exuberant than those seen over the past two years, amid concerns that elevated inflation and higher borrowing costs will constrain demand.

Nonetheless, the degree of construction sector optimism picked up slightly since June, which ended a five-month period of falling confidence."

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