Construction activity falling at the fastest rate for years

Activity in the UK construction industry fell at the fastest rate in the history of the series in May, with poor performances from most of the key indicators, especially housing activity, underpinning the decline.

Housing activity was particularly depressed and fell at a record survey pace as the seasonally adjusted Housing Activity Index posted a reading of 32.7 down sharply from 40.3 the previous month. The commercial sub-sector also experienced its sharpest fall in activity levels since the survey began, although it was not as extreme.

For the third consecutive month, new order levels in the UK construction industry contracted, with the latest fall more marked. Most firms noticed the largest fall in new order levels coming from the housing sector, although numerous reports indicated that the reduction in new orders was more widespread across the industry.

Sub-contractor usage by UK construction firms fell at the fastest rate since the survey began in April 1997. The lack of demand for their services was reflected in the other sub-contractor indicators. Their availability rose sharply to a survey high while rates charged inflated at a weak rate.

On a more positive note, the rate of input price inflation eased further in May. However, input costs still increased strongly, with high raw material prices remaining the underlying cause.

Purchases declined in May for the third month in a row. Unfavourable economic conditions in the UK construction market (particularly in the housing sub-sector), delays on current projects, and lower turnover levels were all given as reasons for the reduction in buying activity.

Suppliers’ delivery times improved for the first time in almost three years. However, it was a lack of orders rather than improved efficiency that had the most influence on average lead-times.

Confidence in future activity in the sector continued in May. Some firms provided business expansions and contract negotiations as explanations. Others simply believed that the market will improve. That said, positive sentiment was the weakest in survey history.

Roy Ayliffe, director of professional practice at the Chartered Institute of Purchasing and Supply (CIPS), said: “Purchasing managers saw overall activity levels in the UK construction industry decline at the sharpest pace since the PMI survey began in April 1997, with the housing sector worst hit by the effects of the credit crunch.

“May data for the sector heralded a further, more marked, contraction in levels of new business and, notably, the use of sub-contractors fell at the fastest rate in survey history, as demand for services waned.”