Survey of purchasing managers reveals lowest level of construction activity for 19 months

British construction companies are facing a bleak future as growth in the sector slows to near-stagnation, according to a survey of purchasing managers.

Data for September showed a broadly unchanged level of activity in the UK construction sector compared to August. The Markit/CIPS Construction Purchasing Managers’ Index (PMI) posted 50.1, only fractionally above the 50.0 no-change threshold that separates expansion from contraction.

Respondents commented that opportunities to tender had decreased, and noted that weak client confidence had led to projects being delayed or cancelled.

Although purchasing activity was down, suppliers’ delivery times continued to lengthen, and input costs rose markedly with the price of raw materials and fuel. According to panellists, shortages of stocks at vendors sometimes led to poorer supplier performance.  

The Markit/CIPS UK Construction PMI, which provided the data, is drawn from monthly questionnaires sent to purchasing executives in construction companies. Respondents from the housing and civil engineering categories reported lower output in September, with residential construction continued to be the weakest performing sector.   

There was slightly better news for commercial-based construction, where activity increased during the month.

Firms expressed tentative hope that activity would increase over the next year, and employment in the sector rose marginally in September off the back of a projected increase in workload in 2012. Those firms which cut jobs rather than creating them said reductions in staffing were implemented in line with an overall contraction in new business.

Sarah Bingham, economist at Markit and author of the UK Construction PMI, said: “UK construction companies continued to struggle in the face of growing concerns about the wider economy, with weaker client confidence leading to a reduction in new business received during September. 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.

“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. On a more positive note, commercial-based activity increased again.

“Meanwhile, expectations for activity over the next 12 months remained historically weak. Uncertainty regarding the economic outlook depressed optimism.”

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