Residential developments were the only part of the construction industry to grow in May, according to figures from the Purchasing Managers Index, PMI.

The construction index fell to a 15-month low of 48.6 in May after rising to 50.5 in April from 49.7 in March and 49.5 in February. May’s reading of 48.6 took the index below the 50 level which indicates flat activity.

Hank Zarihs Associates | Residential Developments Grow In May

Last month’s growth in house building was softer than the average in 2018. Residential developments have recorded higher levels of activity each month since February 2018.

The latest survey pointed to a modest reduction in new orders, with the rate of decline the steepest since March 2018. Construction companies reported strong competition, hesitancy among clients and longer sales conversion periods, largely reflecting subdued demand in May.

Chartered Institute of Procurement and Supply group director, Duncan Brock, said: “The previously unshakeable housing sector barely kept its head above water, growing at its weakest level since February as residential building started to lose momentum.”

Finance brokers Hank Zarihs Associates said the UK’s housing shortage and Government pressure to build 300,000 new homes a year by 2025 would mean the sector would continue to expand.

The brokerage added demand for construction loans and development and refurbishment finance among SME house builders showed no signs of abating.

Economic forecasters the EY ITEM Club said data from the Office for National Statistics showed construction output had fallen 1.9 per cent month-on-month in March after increases of 0.5 per cent in February and 3.3 per cent in January.

Chief economic advisor, Howard Archer, said:  “Nevertheless, construction output expanded 1 per cent quarter-on-quarter and 2.8 per cent year-on-year over the first quarter of 2019 and was up 3.2 per cent in March itself.”

New hires slump

Reduced workloads led to more cautious recruitment strategies and the non-replacement of departing staff in May. As a result, the latest index pointed to the sharpest drop in employment for six-and-a-half years.

Construction companies reported modest declines in their purchasing activity. Although only marginal, the latest reduction was the largest since September 2017.

Supply chain pressures persisted in May, which led to lengthening of average lead times among vendors. There were a number of reports citing low stocks and shortages of materials particularly plasterboard.

Average input prices continued to rise in May, however, the overall rate of input price inflation eased to its weakest since June 2016.

Survey respondents were concerned domestic political and economic uncertainty would dampen business growth over the next 12 months. Lower volumes of commercial work and civil engineering activity more than offset a modest increase in house building.

IHS Markit  compiles the survey for the Chartered Institute of Procurement and Supply based on responses by purchasing managers across a panel of 150 key construction companies.

Developers' levies to be made speedier and more transparent
Rise in demand for prime London spots, reports Knight Frank
author avatar
Shiraz Khan is the author of the content. Shiraz is the managing director and founder of Hank Zarihs Associates. With over 16 years' of experience we are master brokers within the short term financing industry. We specialise in a wide variety of short term loans.