Commercial sector bucks downward UK construction trend

Construction business activity fell by the third month running in January, with new orders at slowest pace since October 2012 according to the latest Markit/CIPS UK Construction Purchasing Managers’ Index (PMI). There were some reports that snowfall had contributed to reduced output volumes, but the majority of respondents cited weak underlying client demand and a lack of new projects.  However commercial activity was the only sub-sector to buck the wider downward trend in output during January with the latest data indicating unchanged volumes of commercial activity, ending five months of contraction.

The seasonally adjusted PMI – which measures the overall output in the sector – posted 48.7 in January, which was unmoved from December’s six-month low. Lower construction output in January reflected falling volumes of housing and civil engineering activity.

Explained Tim Moore, author of the PMI and Senior Economist at Markit: “January’s survey results are yet another indicator of the severe underlying fragility across the UK construction sector, with output failing to rise in any of the three monitored sub-sectors for the first time since last summer.”

Survey respondents did signal an upturn in their confidence about the outlook for business activity over the next 12 months, however, the highest level since last July. This in turn supported employment levels in January, with higher construction workforce numbers reported for the first time in four months.

Said Moore: “There was some let up in the pace of new order decline, as well as a resilient employment trend in January. Looking ahead, construction firms reported improved optimism about the business outlook, although much of this appeared to rest on hopes that the chorus of calls for greater public sector investment spending starts to come to fruition.”

Commenting on the report, David Noble, Chief Executive Officer at the Chartered Institute of Purchasing & Supply, said: “Against expectations, businesses have a spring in their step looking ahead to 2013. This new-found confidence has been buoyed by news of public investment, but it could be found wanting, if the Government’s recent rhetoric on major infrastructure projects fails to bear fruit. ”

Reviewing the figures, Michael Conroy Harris, construction expert at law firm Eversheds said that the UK construction market has some way to go before it reaches a sustainable size. He also called for greater government investment. “In reality, we will continue to see sustained contraction and the only thing that will slow this is likely to be a move towards significant Government backed projects.”