Construction sector decline slows as optimism returns

Bosses in the construction sector have seen a noticeable boost in business following the decisive election victory by the Conservatives, according to an influential report.

The monthly IHS Markit/CIPS Purchasing Managers’ Index (PMI) for January recorded a score of 48.4 – anything below 50 is seen as a sector in decline – but this was a boost from December’s score of 44.4.

Tim Moore, economics associate director at IHS Markit, which compiles the survey, explained: “The construction sector downturn lost intensity in January amid slower reductions in house building, commercial work and civil engineering activity.

“Measured overall, the latest dip in construction output was much shallower than in December, with survey respondents often commenting on improved willingness to spend among clients since the general election.”

He added that the best-performing part of the construction industry was the house-building sector, with output only falling slightly.

Commercial work also saw its decline stabilise – dropping at the slowest pace since the start of 2019 and benefiting from the political uncertainty coming to an end.

British-based businesses have been avoiding high levels of spending on new buildings due to the impasse over Brexit leaving companies unwilling to commit to major projects. The trade disputes between China and the US have also impacted construction.

And although the sector remains in decline, optimism is now at its highest level since April 2018, he said.

But there were also warnings that job losses are continuing throughout the industry.

Duncan Brock, group director at the Chartered institute of Procurement and Supply, said: “Job losses are still in evidence overall and with an increase in sub-contractor use, it appears the sector is looking for short-term fixes to manage current workloads.

“Construction firms are not yet ready to scale up plans to increase workforces in the coming months without a stronger economic and political recovery clearly in sight.”

Max Jones, relationship director in Lloyds Bank Commercial Banking’s infrastructure and construction team, added that if a series of infrastructure projects – including the HS2 rail link – are given the go-ahead, the sector could be boosted even further.

He added: “Contractors are acutely aware that construction is a cyclical sector and is generally aligned to the wider economy.

“However, there is usually a lag so even if recent forecasts of a more buoyant economy this year come to fruition, it may take time to show up in the construction data.”