Slowdown in housing growth hits construction output

There has been a further loss of momentum in the growth of the UK’s construction sector, with residential building work particularly affected.

For the first time since January 2013, residential building is the worst performing sub-category of construction output.

Latest figures from the Markit/CIPS UK Construction Purchasing Managers’ Index (PMI) show the slowest rise in overall construction output since April 2015. Output, new orders and employment all expanded at slower rates than at the start of the year.

The headline PMI figure registered 54.2 in February, down from 55.0 in January and the lowest since April 2015. Although it remains above the 50.0 value that separates expansion from contraction, the latest reading pointed to one of the weakest rises in output seen over the past two-and-a-half years.

The latest rise in housing activity was the slowest recorded since June 2013. Growth of commercial building work also moderated in February, with the rate of expansion the softest since the election-related slowdown in May 2015. Civil engineering bucked the overall trend in February, with growth accelerating to its fastest for five months. Some firms pointed to a rebound in work on infrastructure projects.

Tim Moore, senior economist at Markit and author of the Markit/CIPS Construction PMI, said: “Survey respondents noted that underlying business conditions remained favourable, especially in relation to commercial building and infrastructure-related work, but some clients had been hesitant to commit to new projects so far in 2016. Reflecting this, new order growth weakened again and construction firms were the least optimistic about their year-ahead growth prospects since December 2014.”

He added that construction companies have cut back on employment growth in response to the uncertain business outlook. “Net job creation eased to its lowest since August 2013, which contrasted with the robust hiring patterns seen throughout last year,” he said. “At the same time, input buying rose at one of the weakest rates since mid-2013. More cautious purchasing strategies can be seen as another indication that construction firms are preparing for an extended period of softer growth this year.”

Chartered Institute of Procurement & Supply group chief executive officer David Noble said: “The housing sector, which once led the way with a robust performance, offered a poor show – the weakest growth for just over two-and-a-half years. And, though overall growth was maintained, business confidence for the future was at its lowest since December 2014. The next few months will be critical to the understanding of whether this dampened optimism was justified and whether there are still more serious issues to be unearthed.”

While construction firms noted that client spending was still generally expanding, there were some reports that business confidence had moderated in February and weighed on clients’ willingness to commit to new projects.