Building firms suffered a squeeze on activity for a second month in a row during August as new orders slowed to their lowest level since the summer of 2020 in the latest sign that a UK recession is looming.
With inflation at a 40-year high, construction businesses reported that their customers were putting new work on hold, forcing them to stop buying materials and hiring staff.
S&P Global’s construction sector index showed depressed activity last month, after an even steeper fall in July. The Cips UK construction purchasing managers’ index was 49.2 in August, after a reading of 48.9 in the previous month. A figure below 50 indicates the sector has contracted.
Andrew Harker, the economics director at S&P Global Market Intelligence, said the sector “looks set to be in for a challenging period”.
Civil engineering was the hardest hit over the two months combined, while commercial building also experienced a reduction in activity. Only housebuilding enjoyed a lift in August, but that was too modest to push the rest of the industry into growth.
Harker said despite the August increase in activity, housebuilding was in a period of stagnation and the only silver lining was that employment remained strong.
Gareth Belsham, a director of the national property consultancy Naismiths, said the construction sector was a “canary in the coalmine” for the rest of the economy.
“As the recessionary vice begins to close on the UK economy as a whole, the construction industry’s brakes are being squeezed harder and faster than most,” he said.
Andrew Wishart, the senior property economist at the consultancy Capital Economics, said a drop in demand by the leisure and hospitality industry for new work as the cost of living crisis spilled over to the demand for gyms and hotels was especially significant.
He said the survey was consistent with construction output falling from 4.1% in the year to June to zero by the end of the year.
Max Jones, a director in Lloyds Bank’s infrastructure and construction team, was more upbeat, saying that some firms were flourishing during the recent period of uncertainty.
“Despite output remaining in contraction, many larger contractors are feeling more confident than they were earlier in the year,” he added.
“Recent financial results from tier one firms showed healthy balance sheets and strong pipelines of new work. Others priced in jobs at a high point and are buying materials now as prices cool. As was the case during the pandemic, sensible balance sheet management has and will continue to be crucial.”
