Election nerves continue to threaten construction activity

Activity in the UK construction industry has been significantly affected by uncertainty surrounding the General Election, with two new surveys showing a marked decline in growth at the beginning of 2015.

UK construction hit its lowest level of growth for almost two years in April 2015 as uncertainty relating to the General Election took hold, according to the latest survey from Markit and the Chartered Institute of Purchasing & Supply (CIPS).

Both output and new orders grew at the slowest rates since June 2013, with many respondents claiming that clients have delayed making spending decisions until after the outcome of the election is decided.

At 54.2 – down from 57.8 in March – the seasonally adjusted construction Purchasing Managers’ Index (PMI) dropped for the second month running. While it remained above the 50.0 no-change value, it continues the steady decline in output registered by the survey recently, with new business growth slowing in eight of the past ten months

Residential building activity remained the best performing broad area of construction output during April, although even in this category the pace of expansion fell to a 22-month low. Meanwhile, growth of commercial construction work was the least marked since August 2013 and civil engineering activity decreased for the first time in four months.

Tim Moore, senior economist at Markit and author of the Markit / CIPS Construction PMI, said: “April’s survey highlights another growth slowdown across the UK construction sector, with new work expanding at the weakest pace for almost two years.

“The uncertain General Election outcome appears to have put some grit in the wheels of decision making. Construction firms widely noted delays with clients’ budget setting and a reduced propensity to commit to new projects.”

These findings have been supported by the Glenigan Index for May – covering the value of projects starting on site during the three months to April – which showed a decline of 11% year-on-year as office, retail and industrial activity plummeted.

According to Glenigan, civil engineering activity dropped by 10% over the first three months of the year – reversing the 11% growth experienced in the three months to March – while education activity also fell. Glenigan has suggested that this could be due to universities delaying schemes until after the election.

Allan Wil‚n, economics director at Glenigan, said: “The pace of expansion in the commercial sectors has eased over the last six months, however the recent sharp decline is a break in this trend, and suggests a wholesale decision to ?wait-and-see’ by private sector clients and developers.”

Despite the decline in activity, business confidence remains high for the next 12 months according to the Markit / CIPS PMI. A number of firms cited optimism that underlying demand would continue to improve, while others suggested that the removal of election-related uncertainty would help support new business gains.

This was supported by Glenigan’s findings, which suggest that activity will rise again after the next Government is voted in. Mr. Wil‚n added: “We expect construction starts to spring back during the second half of the year, so long as a credible Government is formed and the prospect of a second General Election later in the year fades. This would mitigate the impact of the recent slowdown.

“Continued improvements in planning approvals add weight to the view that this is a pause rather than a permanent shift in market conditions.”

The same optimism is also being felt

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