A rise in housebuilding activity in the UK has resulted in a boost for the construction sector, which returned to growth in April following two months of contraction.
The latest IHS Markit/CIPS Construction Purchasing Managers’ Index (PMI) revealed construction output rose to 50.5 in April. This is an increase from 49.7 in March and represents a three-month high.
It is also higher than Reuters’ poll of economists, who estimated the figure to come in at 50.3.
Just this week, the National House-Building Council reported a three per cent increase in housing starts from the first quarter of 2018 to the same period this year, with the number of new homes registered by UK housebuilders and developers during the first three months of 2019 reaching more than 37,500. This would help to explain the rise in PMI figures.
The IHS Markit report also found the housing sector was benefiting from a high demand for work and a “strong flow of new buyers”, City AM revealed.
Group director at the Chartered Institute of Procurement & Supply Duncan Brock told the news provider that this industry was “the only saviour of a sector otherwise heading for contraction”.
He noted that many clients deferred decision-making, which had a big impact on larger commercial and infrastructure projects. This, Mr Brock, said ended up “throwing the industry off-balance”.
Indeed, Tim Moore, IHS Markit economist, stated: “A return to growth would normally be considered a positive month for the UK construction sector, but the weakness outside of housebuilding gives more than a little pause for thought.”
While housebuilding managed to rescue the construction sector in April, this cannot be said for commercial activity and civil engineering projects.
Mr Moore added: “Political uncertainty led to delays with spending decisions.”
Many businesses waited to learn the results of Brexit negotiations ahead of the March 29th deadline. However, the UK did not end up leaving the European Union (EU) on this date, and the government has since been given a six-month extension to decide upon an exit strategy.
Last month, after missing the original deadline, EU leaders allowed the government to delay its decision to prevent Britain from exiting without a deal having been settled upon.
Until that point, MPs could not agree on negotiations and they rejected prime minister Theresa May’s withdrawal agreement, as well as the possibility of a ‘no deal Brexit’.
While EU leaders have granted the extension, European Council President Donal Tusk warned the British government to “please do not waste this time” and come up with a strategy before the Halloween deadline arrives.
Despite the pressure being put on the government, and Ms May writing on Twitter that she promises to “press on at pace with our efforts to reach a consensus on a deal”, there have been no further negotiations regarding Brexit, resulting in just as much uncertainty for British companies as there was before.
The ambiguity left many businesses unsure of what was happening, which could explain why new orders fell at their fastest rate last month since March 2018.
What’s more, business expectations dropped to their lowest in six months, with the IHS Markit report stating: “A number of firms linked lower commercial construction to Brexit-related uncertainty and delays with client spending decisions.”
Chief executive at Scape Group Mark Robinson told Building.co.uk that the residential market has been “propping up an otherwise stagnant market”.
This has been the result of Brexit-related uncertainty leading to lower levels of commercial construction, as well as these spending delays and a lack of new projects.
“Dragged out Brexit negotiations have so far been abysmal, and right now further uncertainty is the only thing that the construction industry can count down. Clearly, this is impacting both new orders and long-term business optimism,” stated Mr Robinson.
While the rest of the construction sector is not faring as well as hoped, a rise in housebuilding activity has meant those in the industry have managed to retain their jobs, and machinery, such as blending and mixing equipment, are still high in demand.
Many areas of the country have been set aside for new housing developments, and the Royal Institution of Chartered Surveyors (Rics)’ latest UK Construction & Infrastructure Market Survey for Q1 2019 revealed positivity in the industry.
According to the findings, a net balance of +21 per cent of contributors reported a rise in private housing workloads, which is higher than the +20 per cent who did in the last quarter of 2018.
With regards to the whole of Britain, activity in housing and infrastructure has managed to support workloads in several areas, including Wales, the south-west, the north, Midlands, and the east. While workloads remained broadly flat everywhere else, surveyors in the north were the most positive about the future of the housing industry; +43 per cent of those in the region expect workloads to grow and +26 per cent anticipate more hires to take place.
Commenting on the survey, Rics economist Jeffrey Matsu said financial constraints are limiting growth in the sector, particularly as lending criteria is becoming tighter.
He remains positive about the future, though, saying despite market confidence being subdued, there has been an improvement in the outlook for workloads and employment growth.
“While prolonged Brexit-related uncertainty has taken a toll on business investment, its resolution has the potential to unleash pent-up demand that can be supportive of future growth,” Mr Matsu commented.
Indeed, while many businesses are reducing their activity as they wait to find out what Britain’s Brexit deal will be, this could result in a surge in construction jobs once the October 31st deadline comes and goes.
However, the complexity of it – and how – the UK will leave the EU means companies cannot determine their next move, particularly when it comes to large-scale projects that may involve either demolition or construction work.
Before housebuilding, commercial or civil engineering projects can take place, the site will need to be treated first to ensure foundations can be put down. That is why demolition equipment, such as those used for crushing, shredding and separating materials are essential in the construction industry.
