Declines in UK construction sector

Construction sector

In the latest Chartered Institute of Purchasing & Supply (CIPS) Markit report into construction output, employment and purchasing, volumes are declining sharply, with increased competition reducing turnover. Yet confidence in future activity remains strong.

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CIPS chief executive David Noble said: "The UK construction sector continued to be heavily impacted by the recession as it deteriorated at its fastest rate since June. Though the industry is not contracting as quickly as it was earlier in the year, firms are struggling to adjust to comparatively low levels of activity, as reflected by employment levels which took another hefty hit and have dropped consecutively for sixteen months.

"One of the few glimmers of hope appeared in the housing sub-sector which registered a marginal rise in activity for the first time in twenty-two months. Moreover, as commercial and civil engineering showed further signs of decline, this collectively highlights the volatility of the UK construction industry."

The seasonally adjusted CIPS/Markit Purchasing Managers' Index posted 46.7 in September, indicating a further fall in UK construction sector activity, plus the fastest reduction since June. An index of 50 would indicate no change, above indicates growth and below contraction.

The commercial and civil engineering sub-sectors continued to report reductions in output, with rates of decline accelerating since August.

Incoming new business fell at the slowest rate since the recession began 19 months ago. Where new orders fell, companies attributed the decline to competitive pricing by rival constructors and ongoing budget constraints at clients.

Jobs have been lost in every PMI survey period since June 2008. Similarly, sub-contractor usage posted a further reduction in September, extending the period of sustained decline to twenty-two months.

Economist at Markit Sarah Ledger said: "While the contraction in UK construction sector activity accelerated marginally during September, the average pace of reduction recorded during Q3 2009 was the slowest over a quarter since growth was last recorded in Q1 2008.

"The steep easing in the rate of decline experienced between February 2009, the series record, and June has languished somewhat over the last three months. However, given the depth of the economic downturn experienced in the UK, this likely reflects continued adjustment to lower order volumes and ongoing spare capacity. Employment therefore fell further during the month, with this expected to continue in the near term.

"Encouragingly, the residential construction sector recorded growth in activity for the first time in twenty-two months and overall incoming new contracts received by the UK construction sector fell only fractionally. Therefore, while a positive contribution to GDP would seem unlikely for Q3, an improvement may be seen after this," she said.

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