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Construction still shrinking

The construction sector shrunk for the sixteenth consecutive month in June, according to the CIPS/Markit Construction Purchasing Managers’ Index.

The rate of reduction has also accelerated, according to the survey. The index figure was 44.5 in June (where 50 represents no change). But this is compared with a relatively strong April and May.

David Noble, chief executive officer at the Chartered Institute of Purchasing and Supply, said:

“Against the backdrop of difficult market conditions the UK construction sector is on a knife edge. After the improvements seen in April and May, the sector has retracted as firms battle to consolidate their position in the tough market. This data adds to speculation of a ‘w-shaped’ recession. “

All three sectors in the survey – housing, commercial construction and civil engineering – showed a worsening rate of activity in purchasing for the month.

Within the overall UK construction sector, the level of new orders being received continued to fall. The CIPS said anecdotal evidence had suggested UK constructors were receiving fewer orders as their clients tightened their spending budgets.

“With conditions worsening, particularly in the housing and commercial sub-sectors, competition between firms remained fierce and many were forced to cull jobs again,” said Noble.

“Nonetheless, the sector is in better shape than at the start of the year. Moreover, though purchasing managers say current contracts are drying up and the new business horizon looks sparse, they are still resolute that wider economic recovery will materialise over the coming twelve months.”

In line with lower activity levels, UK construction companies sustained reduced purchasing activity in June. While the rate at which purchasing activity declined has reduced, constructors’ buying of raw materials has continued to be negatively impacted by fewer new contract starts.

The continued contraction in demand for materials has led to higher competition amongst suppliers to UK constructors. This was demonstrated through the continued fall in input prices, where constructors have been afforded a much better position for negotiation as suppliers compete for custom. Equally, vendors have continued to reduce their delivery times, which improved for a fourteenth successive month in June.

Jobs continued to be shed at a heavy rate in June, with many companies running redundancy programmes following reduced activity levels. This theme was echoed, albeit to a much lesser extent, by usage of sub-contractors within the sector. Reduced demand for subcontractors was affirmed by their sharply increased availability, and by the degree to which they have sustained decreases in charges. Moreover, the overall quality of services was reported to have improved further in June.