UK construction sector fails to meet expectations

The construction sector performed below expectations in December, with anticipated growth at its lowest level for approaching five years.

Data from the IHS Markit/CIPS construction purchasing manager's index shows a drop from 53.1 in November to 52.2 in December - below the forecast score of 53.0 for the month.

Although a score over 50.0 is representative of growth, housebuilders slowed their work and commercial property development continued its decline in the final month of the year.

Commercial construction has plummeted since July and had shown little sign of improvement, although this has been offset by 16 consecutive months of residential building growth.

Civil construction has also stabilised according to the PMI, although that comes after firms spent the majority of the second half of 2017 in decline.

Overall new order growth was at a seven-month high in December but the supply chain pressures that blighted the sector in November were reported again.

Alongside increased input cost inflation and rising prices for blocks, bricks and insulation, the cost of imported products also rose.

This puts the emphasis on construction firms to find favourable payment terms and manage their cash flow effectively if they are to stave off the threat of insolvency or financial difficulty.

The PMI also points to a subdued construction sector and IHS Markit Associate Director Tim Moore has suggested it reflects concerns over the UK's economic outlook.

While 37% of firms expect their activity to increase during 2018, 11% anticipate a reduction - this means the balance of construction firms expecting growth is at its weakest point since mid-2013.

Longer payment terms have also caused issues in the sector, as research in late 2017 suggested that the average payment time has increased steadily since 2014.

Meanwhile, the Royal Institute of Chartered Surveyors has voiced concerns that Government house building targets will not be met, while new policies do not come into effect until at least 2019.

They suggest that although a 12% jump in new home creation was recorded in 2017, around 18,000 - accounting for roughly 8% of new property - came in the form of office space conversions and RICS has deemed it unlikely that such high levels of conversions will be able to continue indefinitely.


By Phil Smith


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