Construction sector remains under pressure, confidence shattered
UK construction companies reported little easing in subdued trading conditions, according to a survey released on Friday, with confidence near five-year lows and on course to record a fourth consecutive quarter of reduced output.
The UK construction purchasing managers' index for February rose to 51.4 from the 50.2 four-month low from January, IHS Markit said, beating average of economist predictions for a modest rise to only 50.5.
Construction companies indicated that business confidence was at "one of the lowest levels seen in the past five years", Markit said.
Civil engineering was the weakest subsector again, but residential was said to be on track to experience its weakest quarter since the third quarter of 2016, though both were offset during the month by a further turnaround in commercial building.
Fragile business confidence and ongoing political uncertainty were continuing to hold back client demand, IHS was told, while input costs remained high as raw material prices rose alongside fuel bills and staff wages.
New business volumes fell marginally during February, while new order volumes were also lower, though the new orders index to 49.9 in February, from 48.8 in January. Expectations for future activity also fell below last year’s average, having increased to an eight-month high in January.
Tim Moore, associate director at IHS Markit said: “The construction sector endured another difficult month during February, with fragile business confidence, entrenched political uncertainty and softer housing market conditions all factors keeping growth in the slow lane. Residential work appears on track to experience its weakest quarter since Q3 2016, suggesting that house building is losing its status as the main engine of construction growth.
On civil engineering, he said activity was the worst performing category again, with survey respondents commenting on a shallow pool of work to replace projects reaching completion. "While subdued housebuilding and infrastructure work acted as a brake on the construction sector, this was partly offset by a sustained turnaround in commercial building."
Output in the construction sector remains on course to contract for a fourth consecutive quarter, despite the modest rise in the PMI in February, said economist Sam Tombs at Pantheon Macroeconomics, as any PMI reading below 52 has been consistent with falling construction output in the past.
"The near-term outlook for the construction sector remains bleak," he said. "Hopes that a Brexit transition deal could be agreed by the end of this month now look forlorn, so businesses will remain reluctant to commit to long-term capital expenditure. Rising mortgage rates will subdue demand for new houses.
"Meanwhile, public sector investment is set to fall by 4.5% in 2018/19, provided the Chancellor does not revise the November Budget plans in this month’s Spring Statement."