Construction activity stagnates as new orders fall

Aaron Morby 10 years ago

Construction companies are seeing dangerous signs of a fall-off in new orders and the cancellation of projects, according to the latest survey of construction purchasers.

Existing contracts are still helping to support output, but this has been offset by a fall in orders, tenders and cancellation of some projects.

Construction firms completing the Markit/CIPS Construction Purchasing Managers’ Index survey reported a reduction in new business received during September, the first contraction since February last year.

The Index fell to 50.1, only fractionally above the 50% no-change threshold that separates expansion from contraction. September’s reading was down from 52.6 in August

Firms surveyed said that opportunities to tender had fallen, with some companies also warning that weak client confidence had led to some projects being delayed or cancelled.

Two of the three broad construction categories monitored – housing and civil engineering – recorded lower output last month.

Residential construction was the weakest performing sector, continuing the recent trend. But office construction activity increased in September helping to hold-up construction just above the water line.

Sarah Bingham, Economist at Markit and author of the UK Construction PMI said:  “Activity growth slowed to near-stagnation, with constructors relying on work on existing contracts to support output.

“This therefore bodes ill for construction activity in the coming months.

“Civil engineering declined during September, reflective of cuts in public spending. Meanwhile, house building activity decreased at the fastest rate in 9 months.”

However, recent announcements by the government may provide a reprieve in the coming months, as plans are made for land to be released for development, with construction companies not paying until the resulting properties are sold.

She added: “While growth for Q3 as a whole was modest, it was slower than the expansion recorded in Q2, adding to worries that the overall UK recovery has lost further momentum from the lacklustre GDP growth seen in Q2.”

David Noble, chief executive Officer at the Chartered Institute of Purchasing & Supply, said:  “Things can only get better’ is the feeling amongst some UK construction companies as many pin their hopes on improved market conditions to pull the sector out of this near standstill.

“However, delayed and cancelled projects, more competitive tendering, and general uncertainty over economic conditions are putting a dampener on things, resulting in the first reduction of new orders in 19 months.

He added: “Purchasing managers reported an easing in input cost inflation which may provide some relief for the sector as some noted that the price of certain commodities have started to fall, but there is still a steep hill to climb as high raw material and fuel costs continue to have a significant impact.

“The employment figures are mixed, with some ups and downs, but the overall picture seems to be ‘wait and see’.”

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