UK Construction Sector Sees New Orders Fall
The latest data on the state of the UK’s construction industry is out and it doesn’t make for particularly comfortable reading. In August, the UK’s construction sector saw its sharpest fall in new work since March 2009.
This is according to the latest IHS Markit/Chartered Institute of Procurement & Supply (CIPS) UK Construction Purchasing Managers’ Index (PMI). The organisations release the index every month, and the picture from August is particularly poor.
It also revealed that construction output fell for its fourth consecutive month, while business optimism also slumped to its lowest point since December 2008. The index registered 45 in August, down marginally from the 45.3 recorded in July. A rank of 50 indicates no change, and any figure below this shows the sector is in negative territory.
Commercial building suffered the greatest contraction, although civil engineering also saw a sharp fall in activity in August. House building is still the most resilient construction sector, and although it experienced a decline in August, it was only slight.
One positive for the sector is that staffing levels haven’t fallen considerably, despite the reduction of new orders.
According to the survey, business optimism was hit due to the domestic political uncertainty in the UK, and the fall in client spending.
Economics associate director at IHS Markit Tim Moore commented: “Construction companies noted that rising risk aversion and tighter budget setting by clients in response to Brexit uncertainty had held back activity, particularly in the commercial sub-sector.”
He added that the decline in commercial construction “more than offset the softer rates of decline in house building and civil engineering work”.
Duncan Brock, group director at the CIPS, warned that it will take time for sentiment and orders in the sector to improve, and that there is likely to be more bad news from the industry before the end of the year.
Last month, the Federation of Master Builders (FMB) was among a coalition of major construction trade bodies to call on the chancellor to delay plans to introduce reverse charge VAT in the sector.
As things stand, the changes to VAT charging are set to come into force on 1 October, just a month before the Brexit deadline when it’s looking as though the UK could be leaving the EU with no deal in place.
The coalition has asked for these changes to be delayed by at least six months to help alleviate the burdens the sector is facing.
Chief executive of the FMB Brian Berry said that the fact that 15 industry organisations have come together to make this plea shows just how concerned the sector is about the changes. “We urge the government to rethink the timing of these changes,” he asserted.
One of the biggest concerns among those in the sector is the impact this could have on cash flow, which is already tight. Added to this is the fact that guidance on the reverse VAT charging has only been issued in the last couple of months, leaving firms with very little time to prepare.
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