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UK Construction Industry Experiences Sharp Slowdown

In April the construction industry in the UK grew at its slowest pace in nearly two years, according to the latest Construction Purchasing Managers' Index issued by CIPS/Markit.

The PMI for March was 57.8, and subsequently dropped to 54.2 the following month. Markit says that this is indicative of a “sharp slowdown”.

It added that some construction firms were delaying spending decisions until the General Election has taken place.

Any reading above 50 is indicative of growth, while returns below 50 suggest contraction.

While the latest results of the survey suggest that there was solid overall expansion taking place in the construction industry, the pace of growth has slowed down even in the industry’s residential building sub-sector, which has been driving growth for the greater part of the last two years.

According to Markit, growth in new business has been slower in eight of the past ten months, but representatives of construction firms say that underlying conditions have remained favourable.

Job creation in the construction sector continued to be robust in April, although Markit confirmed that the rate of new employee hire has remained slower than the 2014 average.

The latest PMI results came only a week after the Office for National Statistics (ONS) issued its first estimate of the country’s economic growth for the first quarter of 2015. The ONS data suggested that growth had slowed to 0.3%.

This return came primarily on the back of a slowdown in construction output, which went down in the first quarter by 1.6%. Because it was the second consecutive quarterly fall, technically the construction sector is in recession.

Markit senior economist Tim Moore attributes the cause of the slowdown to uncertainty over the outcome of the General Election. Building firms are citing delays in customer budget setting and a weakened level of commitment to building projects.

Specialists in Construction Insurance

Mr Moore said that despite the pre-election aversion to risk among construction clients in April, build companies admitted to being confident regarding the outlook for the remaining months of 2015. As a result, industry hiring was strong and had changed little since March, which placed added pressure on the availability of skilled staff.

He added that when viewed in its entirety, the latest survey data suggests a much more positive picture of the first three months of 2015 than what the official construction production data has suggested.

Residential building activity showed the strongest performance in the industry, while work in civil engineering decreased for the first time in four months.

Construction companies reported that the pay level of subcontractors had gone up at the quickest pace since data collection began 18 years ago, indicating that it has become more and more difficult to recruit new workers.

Howard Archer, chief European and UK economist at IHS Global Insight, said that if a sustainable government results from the general election and political uncertainty recedes, there is a reason to be optimistic about the construction sector despite the weakened performance these surveys have documented.

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