U.K. construction output deteriorates further in December, PMI index falls to 44.4

Data collected in December indicate towards sharp fall in U.K. construction output, with a downturn persisting throughout all three broad categories of activity. The headline seasonally adjusted IHS Markit/CIPS U.K. Construction Total Activity Index dropped to 44.4 in December from November’s 45.3. This is the eighth straight month that the index is below the crucial 50 no-change value.

The current period of falling business activity throughout the construction sector is the longest seen by the survey of nearly one decade. Civil engineering was the worst-performing category of construction in December, with activity declining at the most rapid rate since March 2009. Anecdotal evidence implied that political indecision and delays with contract awards for new projects had led to falling business activity.

Latest data also showed a sharp fall in commercial work, which was partially linked to clients choosing to postpone spending decisions ahead of general election. In the meantime, house building fell for the seventh straight month in December, but the pace of fall was just modest. Construction firms saw a marked drop in new business volumes in December, although the rate of contraction stayed less severe than the 10-year record seen in August. The latest survey also indicated towards the weakest fall in staffing figures for four months. Where a fall in employment levels was seen, survey respondents often cited the non-replacement of voluntary leavers in the midst of a lack of work to replace completed projects.

A reduced pipeline of incoming new business led to declining demand for construction products and materials at the end of 2019. A strong and accelerated fall in input purchasing throughout the construction sector aided in easing some supply chain bottlenecks. Therefore, vendor lead times increased to the least marked extent since September 2010.

Sluggish demand for construction inputs put a brake on pricing among suppliers in December. The latest rise in overall purchasing costs was only modest and the softest seen by the survey for nearly 10 years. Survey respondents noted that higher fuel and energy costs were the main drivers of increasing input prices.

On the contrary to the weak output trends seen in December, construction firms indicated that their positivity towards the year-ahead business outlook recovered to a nine-month high. Several companies implied that greater clarity in relation to Brexit had the potential to stimulate order books in 2020.