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UK construction output declines for third consecutive month

Output in the UK construction sector declined for the third month running in July as lower volumes of work were recorded across all three broad categories of activity.

The IHS Markit/CIPS UK Construction Total Activity Index recorded 45.3 in July – below the 50 no-change value – to mark the third consecutive monthly fall.

The latest reading was up from June’s ten-year low of 43.1 but still signalled a marked downturn in total construction activity.

The latest survey also revealed a sharp drop in new order intakes, which survey respondents mainly attributed to subdued economic conditions and domestic political uncertainty. Weaker demand contributed to a slide in business optimism towards the year-ahead outlook for construction activity, with the degree of confidence the lowest since November 2012.

Commercial construction was the worst-performing category in July, followed closely by civil engineering activity. Anecdotal evidence suggested that risk aversion among clients in response to Brexit uncertainty continued to hold back work on commercial projects. At the same time, some survey respondents noted that delays to contract awards for infrastructure work had acted as a headwind to civil engineering activity.

Housebuilding fell for the second month in a row during July, but the rate of decline was only modest and eased from the three-year record seen in June. Reports from construction companies suggested that sluggish housing market conditions had a negative influence on residential work during the latest survey period.

July data pointed to a downturn in total order books across the construction sector for the fourth successive month, which is the longest continuous period of decline since 2016. Lower volumes of new business were often linked to a lack of tender opportunities amid weaker domestic economic conditions and ongoing political uncertainty.

Employment numbers were cut back in response to deteriorating order books, although the rate of job shedding was only modest and largely reflected the non-replacement of voluntary leavers. Sub-contractor usage meanwhile decreased for the sixth consecutive month.

Demand for construction products and materials continued to soften, as signalled by a solid drop in purchasing activity during July. This helped to alleviate some of the pressure on supplier capacity, with lead times lengthening to the smallest extent since September 2016. A robust rate of input cost inflation persisted in July, partly reflecting rising prices for imported items and those in short supply (particularly insulation and plasterboard).

Construction companies meanwhile reported a sharp drop in their confidence regarding the year-ahead outlook for business activity. The latest reading was the lowest since November 2012. Survey respondents often cited Brexit uncertainty, the prospect of a General Election and delays to infrastructure work.

Tim Moore, economics associate director at IHS Markit, said: “UK construction output remains on a downward trajectory and another sharp drop in new orders has reduced the likelihood of a turnaround in the coming months.

“Total business activity declined at a softer pace than the ten-year record seen in June, but this should not detract attention from the challenges ahead for the construction sector. Customer demand has been squeezed on all sides in recent months, which has pushed down business expectations to the lowest since the second half of 2012.

“July data revealed declines in house building, commercial work and civil engineering, with all three areas suffering to some degree from domestic political uncertainty and delayed decision-making.

“Construction companies have started to respond to lower workloads by cutting back on input buying, staffing numbers and sub-contractor usage. If the current speed of construction sector retrenchment is sustained, it will soon ripple through the supply chain and spillovers to other parts of the UK economy will quickly become apparent.”

Responding to the statistics, the Federation of Master Builder (FMB) called for a delay to the implementation of Reverse Charge VAT.

Brian Berry, chief executive of the Federation of Master Builders, said: “The fall in construction activity for the third month in a row and business optimism being at its lowest levels since 2012 means the building industry is heading towards crunch time. The Government must immediately postpone its plans for a complex and burdensome tax change if the supply chain is to start to turnaround its consistent decline. The time is not right to implement Reverse Charge VAT, which would restrict cashflow and add extra administrative burdens which risk sending small businesses to the wall. The government’s guidance on the policy is confusing and complex, and it wasn’t published with enough time for companies to prepare.”

Berry added: “Reverse Charge VAT, Making Tax Digital and a no-deal Brexit will create the perfect storm for construction’s small businesses, and today’s PMI data shows that the resilience is not there to weather it. If we are to deliver the housing and infrastructure that we need now and in the future, we will need to maintain capacity in the construction industry which means looking after the supply chain. The government must support the industry by delaying Reverse Charge VAT for six months at least.”

Mark Robinson, Scape Group chief executive, added: “New work and business optimism dropped in July as customer demand plummeted for the third month in the row, in response to the increasingly gloomy economic outlook and heightened political uncertainty.

“A no-deal Brexit in October is looking more likely than ever – which is terrible news for the sector. Not only is the knock-on effect on the pound likely to make the cost of construction materials shoot up even more, but an end to free movement will see thousands of skilled workers return home, further deepening the skills shortage that the sector faces.

“All eyes are now on Boris to get Britain building again. Bold decision making, clear commitments, and guaranteed funding for infrastructure investment all have a proven track record of igniting economic recovery and growth. We are counting on his ‘can do’ attitude to cut through the paralysis on decision-making we are experiencing in the public sector.

“With just three months until our Brexit date, there is no room for error. Boris’ government now hinges on a majority of one, but right now a general election will only further distract Whitehall from the issue at hand – securing a deal that works for all.”

Source: Scottish Construction Now

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UK construction activity slows in August, price pressures ease

British construction activity slowed in August after reaching a two-year high the month before, as builders worked their way through projects delayed by bad weather earlier in the year, industry data showed on Tuesday.

Financial data company IHS Markit said its monthly purchasing managers’ index for the construction industry dropped to a three-month low of 52.9 last month from July’s 55.8, below all forecasts in a Reuters poll of economists.

“The construction sector slipped back into a slower growth phase in August, with this summer’s catch-up effect starting to unwind after projects were delayed by adverse weather at the start of 2018,” survey author Tim Moore said.

The slide follows the weakest manufacturing PMI in more than two years on Monday, but analysts will not have a broad picture of the economy until figures for the much larger services sector are released on Wednesday.

Data released overnight showed robust consumer spending growth, driven by spending at pubs and restaurants, though some high-street shops suffered from hot weather and a long-term challenge from online retailers.

Overall, Britain’s economy has slowed in the two years since June 2016’s Brexit vote, and the Bank of England raised interest rates last month for only the second time in more than a decade on concern about longer-term inflation pressures.

The PMI survey showed widespread capacity shortages remain, and suppliers were taking the longest to deliver building materials since March 2015. Shorter-run inflation pressures eased, though, with input prices rising at the slowest rate in more than two years.

Source: Investing

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Softer housing market weighs on key sector

THE UK construction sector showed only marginal growth in February amid “entrenched political uncertainty”, as a soft patch for housebuilding continued and civil engineering activity fell, a key survey shows.

Commercial property construction was the bright spot in the sector, recording its fastest increase in activity since May last year.

The Chartered Institute of Procurement & Supply’s purchasing managers’ index edged up from 50.2 in January to 51.4 last month on a seasonally-adjusted basis.

This took it further above the level of 50 deemed to separate expansion from contraction but the February reading nevertheless signals only slight growth.

The UK construction sector’s new business volumes fell in February, the survey shows.

Howard Archer, chief economic adviser to the EY ITEM Club think-tank, said: “The purchasing managers’ survey indicates that the construction sector is having a lacklustre start to 2018.”

He added: “February’s reading was still only slightly above the 50 level that indicates flat activity.”

Tim Moore, associate director at IHS Markit and author of the construction survey, 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 housebuilding is losing its status as the main engine of construction growth.”

Source: Herald Scotland

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Worst case no-deal Brexit could see 43,000 fewer UK construction jobs, report says

A no-deal Brexit could see up to 43,000 fewer construction jobs in the UK, according to an economic forecast commissioned by the mayor of London.

The research undertaken by analysts Cambridge Econmetrics has produced a damning report on the adverse effects a hard Brexit could have on the UK economy and various sectors. Sadiq Khan claims the study shows that a no-deal outcome could cost the country half a million jobs and £50bn in lost investment by 2030.

The findings also looked at London alone where increased housing numbers are desperately needed. Experts believe there could be 5,000 fewer jobs and a drop in output of up to £1.2bn by 2030 in the construction sector should the UK decide to walk away from a deal and leave both the EU customs union and single market.

Mayor of London, Sadiq Khan, said: “If the government continue to mishandle the negotiations we could be heading for a lost decade of lower growth and lower employment. The analysis concludes that the harder the Brexit we end up with, the bigger the potential impact on jobs, growth and living standards.”

The analysis looks at the potential impact five different Brexit scenarios could have on nine key sectors of the economy. It shows that every Brexit outcome analysed would be bad for the British economy, but that the harder the Brexit, the more severe the consequences. The worst of the five scenarios postulates a departure in March 2019 with no deal or transition arrangements and researches have estimated this would lead to 482,000 fewer jobs across the entire UK and a loss of £46.8bn in investment by 2030.

“If the government continue to mishandle the negotiations we could be heading for a lost decade of lower growth and lower employment.”
Sadiq Khan, mayor of London.

James Murray, deputy mayor for housing and residential development, said: “This report lays bare the huge risks we would face as a result of Government’s failure to secure a Brexit deal that works for London and the rest of the UK. The fact the Mayor has had do the prime minister’s job in publishing the full impact of Brexit is truly damning. It shows the scale of the blow that a no-deal hard Brexit could have on our homebuilding efforts. London needs 13,000 additional construction workers to build the homes the capital needs – we simply cannot afford to lose skilled European labour.”

The research was commissioned after the Brexit secretary David Davis told MPs in December the government had failed to produce any economic forecasts on the likely impacts Brexit could have. Answering questions from the Brexit select committee, Davis also said no economic impact study had been undertaken before the cabinet decision to leave the customs union.

The Labour mayor was also a strong supporter of the remain campaign and has since argued for the UK to stay in the EU’s single market and customs union. Davis’s admissions in December have said to ignite a drive to produce some research-based evidence of future impacts. While the report’s authors have stressed the figures are reliant on a range of factors, it is the first time analysis like this had been undertaken to delve into the wider impacts of a no-deal Brexit.

Analysis by Melanie Leech, chief executive of the British Property Federation

Not knowing if we’ll have enough skilled workers to resource the construction industry over the coming years is deeply concerning.

We urge government to provide clarity on the status of EU workers as soon as possible – we are already seeing this uncertainty undermine regeneration up and down the country.

Government must get migration policy right if we wish to build much-needed homes and the physical environments capable of driving innovation, which underpin a successful post-Brexit UK.

Source: Infrastructure Intelligence

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Finance a vital resource as billing delays hit building industry

Businesses in the UK construction sector have been hit by a leap in payment delays, with invoices taking an average of 69 days to be settled.

Analysis of more than 13,000 companies by Funding Options, the online business finance supermarket, shows that delays have risen 8% in the past two years.

It warns that a single late payment can be an issue even for successful firms, which can be caught out if a major client delays a payment significantly. If that late payment coincides with a major bill coming in, such as a tax, VAT or rent payment, the consequences can be severe.

Furthermore, the construction sector has a long supply chain which includes many small and medium-sized enterprises and delayed payments could create a domino effect that impacts hundreds of small suppliers.

Slow payment of bills is a major reason why the construction sector has such a high number of insolvencies; 2,557 construction firms entered insolvency during 2016.

Conrad Ford, CEO of Funding Options, said: “What this data again underlines is that the construction sector has a persistent problem getting clients to pay early on.

“Long supply chains in industries like construction mean that the ripple effect of delays is likely to affect many other businesses further down, with SMEs hit the hardest. In an industry with high overheads in terms of materials and labour costs, this can be difficult to deal with.

“These figures show that it’s more important than ever that the construction sector fully understand the options available to them to free up the funds they require and to minimise the impact of late payment and other poor payment practices.”

Choices available to manage cash flow range from invoice finance and asset finance to crowdfunding and peer-to-peer lending.

Ford added: “Unfortunately, small businesses leaders often don’t know which sort of finance is the best fit for a particular need, or who is out there to provide it.”

Funding Options as a UK online marketplace for business finance, raising tens of millions of pounds for SME finance each year.

It works with dozens of lenders across the alternative business funding spectrum, from challenger banks to invoice finance, hire purchase, leasing, peer-to-peer lending and property funding.

Funding Options has been designated by HM Treasury and the British Business Bank for the bank referral scheme, to help UK SMEs find alternative finance when they are unsuccessful with the major banks.

Average wait in days for invoice payment in construction sector

funding options

Source: Funding Options