18th August 2015

Behind the data: sharp slowdown in UK construction industry

The past few years may have been encouraging for the UK construction industry, which finally showed some signs of sustained recovery after the hugely damaging effects of the global recession.

Behind the data: sharp slowdown in UK construction industry

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In recent months on the Integrity Software blog, we’ve reported on some promising growth figures for certain sectors of the construction industry including one survey which pointed to seven consecutive quarters of growth. However, at the beginning of May the usually positive CIPS/Markit Construction Purchasing Managers’ Index (PMI) reported a “sharp slowdown” in the construction industry’s fortunes. Additionally, figures from the Office for National Statistics suggested that the construction sector had actually entered recession during the first quarter of 2015. These figures startled many commentators, but a closer look at the data shows that the situation may be a little brighter.

Slow growth

First, let’s revisit the CIPS/Markit survey – its growth index fell from 57.8 in March to 54.2 in April. However, any figure above 50 points to growth, so the survey certainly isn’t as negative as the headlines suggested. Additionally, the same survey found that job growth remained stable.

The CIPS/Markit survey is released monthly – and the figures for May tell a much more upbeat story. Job creation saw a boost and reached a five-month high, and the index rose to 55.9. It appears that the April figures were a blip, with no indication that they point to a worrying trend.

ONS ‘recession’ figures

The ONS released output figures in early May suggesting that the construction sector was in recession again, with the industry contracting by 2.2% in Q4 2014 and 1.1% in Q1 2015. These numbers were immediately queried by the construction industry, with anecdotal evidence and statistics from other industry surveys (such as CIPS/Markit) suggesting that April uncertainty had given way to a more optimistic construction industry during May.

In June, the ONS made a significant revision to these figures, due to changes in how it manages data for seasonal factors and bank holidays. Along with additional data, these interim technical adjustments changed the ONS estimates to 0.2% growth in Q4 2014, and a slight decrease of 0.2% in Q1 2015. A final set of revisions is still to follow at the time of writing.

Therefore, both the surveys we mentioned in the first paragraph aren’t as negative as they first appeared to be – but there was certainly a slowdown during the early months of the year.

Pre-election uncertainty

The general election was almost certainly the main cause of the slowdown highlighted by these two construction surveys. Companies held off on investing and hiring prior to the election, waiting to see which party and which policies would impact their business. Now, with a stable majority government in place, it’s likely we’ll see a good construction output estimate from the ONS for Q2. 

As always in economics and business, data can be interpreted in many ways. Construction accounting software gives you near endless data to manage and analyse, but as with the data we discussed in this article, you often need to delve deeper to see the full picture. Once you have this picture you can make business decisions with confidence. Browse the Integrity Software resourcessection to find out more of the many business benefits of construction accounting software.

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