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UK house building helps construction sector return to growth

Publication Date: 02 May 2019 - By ReachX Team By ReachX Team
Actionable
Differentiated

Macro Equity Fundamental Multi Asset UK Construction

Construction data for April has indicated a marginal expansion of UK construction output, driven by the fastest rise in house building so far in 2019, but commercial and civil engineering activity continued to decline, albeit at slower rates than March.

At 50.5 in April, up from 49.7 in March, the headline seasonally adjusted IHS Markit/CIPS UK Construction Total Activity Index posted above the neutral 50.0 threshold for the first time since January. The latest reading signalled a modest expansion of overall construction output, which contrasted with the declines seen in each of the previous two months.

However, concerns about the demand outlook resulted in more cautious staff hiring strategies in April, as highlighted by the first fall in workforce numbers since July 2016.
Forward-looking survey indicators also remained subdued in April, with new orders falling for the first time since May 2018 and business optimism easing to its lowest since last October. 

House building was by far the greatest positive contributor to sector performance. Latest data revealed a solid expansion of residential work, with the rate of growth reaching its highest since December 2018. Survey respondents commented on resilient demand conditions and a strong flow of new buyers.

Conversely, commercial work was the weakest area of construction output in April, which continued the trend seen during the first quarter of 2019. 

Tim Moore, Associate Director at IHS Markit, which compiles the survey, noted that a return to growth would normally be considered a positive month for the UK construction sector, but the weakness outside of house building gives more than a little pause for thought. 

“Commercial activity and civil engineering both remained on a downward path in April as political uncertainty led to delays with spending decisions. Residential work retained its position as the sole driver of growth across the three main segments of construction activity.”

On the supply side, sub-contractor availability worsened and construction firms continued to report low stocks among suppliers in April. Latest data revealed the greatest lengthening of lead times for construction inputs since February 2015, reflecting ongoing capacity pressures across the supply chain.

Duncan Brock, Group Director at the Chartered Institute of Procurement & Supply, said the strongest rise in residential building since December 2018 was the only saviour of a sector “otherwise heading for contraction” as deferred client decisions continued to impact on larger commercial and infrastructure projects, throwing the industry off-balance.

"Although the sector marginally moved into growth territory in April, there’s a huge question mark over whether there will be any further improvements in the coming months as new orders fell for the first time since May 2018.”

Disclosure:

I have no positions in any of the securities referenced in the contribution

I do not use any non-public, material information in this contribution

To the best of my knowledge, the views expressed in this contribution comply with UK law

I agree with the terms and conditions of ReachX

This contribution is for informational purpose and does not constitute investment advice nor is it an offer to sell or buy, nor is it a recommendation for any security.

ReachX Team

 

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