The latest IHS Markit/CIPS UK Construction Purchasing Managers’ Index (PMI) showed a slowdown in August, as overall construction activity only increased slightly and new business declined for the second month in a row. Increased economic uncertainty around Brexit and other global events and slowing investment were cited as the key reasons for the slowing of activity in the sector.
However, there were some positives to come from the latest results. Residential building has seen strong growth in August, at a faster pace than seen in previous months, and exceeding expectations. This helped soften the blow of almost stagnant civil engineering and commercial building activity slowing the most since last summer.
Cost pressures, which have been an ongoing issue for UK industry as a whole, were at the lowest level for 12 months in the UK construction sector. While poor exchange rates were a factor in increasing the price of materials, market and economic conditions have provided scope for pricing negotiations.
And while new order volumes fell for the second month in a row, they dropped at a slower pace than the dramatic fall last month.
These positives have done little to bolster sector sentiment, however, as the industry remains cautious in the face of economic and political uncertainties.
David Johnson, Founding Director at currency specialist, Halo Financial, commented, “Firms are prudently battening down the hatches in preparation for what may well prove to be tough times ahead. With exchange rates and economic uncertainty playing such a significant role in the slowdown in growth in the sector, construction businesses will undoubtedly look closely at their costs and assess any international exposure, identifying areas where they could potentially lose out to currency volatility.”
“Robust business plans and risk management strategies will be key to navigating the way forward, as ongoing uncertainty will continue to fuel the volatile markets. However, exchange rate volatility can be a boon to international business if harnessed correctly, and therein lies an opportunity not to be missed.”
Brendan Sharkey, Partner and Construction and Real Estate lead at accountants and business advisors, MHA MacIntyre Hudson, commented, “Construction clients are telling me they are experiencing less pressure on material prices and sub-contractors actually asking for work, which indicates there is capacity in the marketplace and is helpful. However, it looks as though Local Authorities are diverting budgets towards “Grenfell projects”, while other proposals are being shelved, which is disruptive to some, but beneficial to those with the relevant skills.