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U.K. Construction Companies See New Recovery if Not Confidence

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The British construction sector has returned to a state of growth following September’s tumble, but firms aren’t getting their hopes up yet.  The hint of recovery comes from a boost in residential building. Still, confidence in this sector has reached its worst low point since December 2012.

Confidence Within the Sector Has Lowered

In October, the commercial projects and infrastructure slowing continued its trend, leaving residential construction to represent the only growth. In September, the purchasing managers’ index (PMI) score had been 48.1.  However, throughout October, the PMI score bounced back slightly to reach 50.8.  On that index, any score higher than 50 is a growth indicator.

Still, despite the positive turnaround in construction in the U.K., confidence within the sector has struck a significant low point.  In fact, it hasn’t been this low since December 2012, 58 months ago.  This was exacerbated by the situation among civil engineering companies, which saw the worst performance records of all considered groups.

According to firms in that group, the lack of new contract flow meant that there was nothing to replace existing projects as they were completed.

According to IHS Markit’s Tim Moore, the firm behind the PMI score calculations, although the uptick in homebuilding has provided a “bright spot,” it should not be overestimated.  October remained a month of struggle for the British construction sector as a whole.

Civil Engineers and Commercial Activity Saw “Sustained Declines.”

As residential construction did see enough growth to give the impression of improvements in the sector, civil engineers and commercial activity experienced “sustained declines,” said Moore.

As a result, as much as the suggested growth does appear to be positive, the sector has far from overcome its significant challenges, said Pantheon Economics’ Samuel Tombs.

Moore explained that the latest PMI score aligned with a 0.5 percent quarter-over-quarter output drop into 2017’s  last three months.  That mirrors the ongoing falling output trend from both the second and third quarters of 2017.  This low sector confidence forecasts an even stronger shutdown ahead, cautioned Tombs.

The British construction sector is in need of rebalancing in a lean away from homebuilding, said Duncan Brock of the Chartered Institute of Procurement and Supply.  He called on Chancellor Philip Hammond to take action on training of new skilled workers within his budget for this month.

That said, Lloyds Bank Commercial Banking’s Mike Chappell said that contractors are not counting on such a move by the Chancellor and that they were going ahead under the assumption that this support was not on its way.

Note: The opinions expressed in this article are the author's own and do not necessarily reflect the view of Alvexo on the matter.