Statistics Show a Bleak Start to 2018’s Second Quarter for Construction and Manufacturing Industries
According to the Office of National Statistics, output from manufacturing firms fell 1.4 per cent in April, the worst performance since October 2012. A slow start to the first quarter of 2018 was attributed to extreme weather conditions, courtesy of the “Beast from the East.” It appears as though hopes of a turnaround, however, have been dampened by these figures.
That’s right, this time around, the manufacturing industry has no excuse, as statistics show the industry’s lowest output figures in five years. Decline continues for the third month running with nine of thirteen industrial subsectors reporting that they had cut output. Not only this, but the construction industry has yet to show signs of a comeback with order books for building firms looking weak for the months ahead.
High street closures are said to be responsible for contributing to the current slump that the construction industry is facing. Despite promising weather conditions over the past month, reduced demand from struggling retailers has been cited by IHS Markit/CIPS purchasing managers survey as one of the reasons for a fourth decline in new orders in five months. Builders were confident that the unusually good weather we enjoyed in May helped boost activity levels, allowing business to catch up once again following the “Beast from the East.” According to the IHS Markit/CIPS construction PMI, readings remained steady at 52.5 points in May – this goes against economists’ forecasts for a slight decline in activity from April. Sam Teague, an economist at IHS Markit, warned that a renewed drop in new work “hinted that the recovery could prove short-lived.”
Consumer spending triggered by weak wage growth and high levels of inflation caused by the Brexit vote is prompting retailers to cut their demand for new shops, which is having a knock-on effect on the construction industry. Furthermore, job creation fell to a four-month low in May, with companies still reporting skills shortages.
Britain’s builders are losing morale, as well as facing inflationary pressures, and input price costs rising at the steepest rate since February. Commercial building activity increased in April; however, this was offset by slower progress in house building and civil engineering projects. House building is still considered to be the strongest area for the construction industry. In the first quarter of 2018, the Office for National Statistics estimates that the construction sector’s output fell by 2.7.
Duncan Brock of the Chartered Institute of Procurement Supply added that “It’s likely that the construction sector’s performance will be a slow and steady crawl through the second quarter, as the spectre of Brexit continues to dominate, and the double pincer movement of few orders, and higher costs, could see the sector stutter further. The only real highlight would be in the home improvements sectore, especially financed by equity release.”
Meanwhile, the industrial sector – which includes energy firms – has seen a fall of 0.8 per cent in April. The industrial sector accounts for 10 per cent of UK GDP, and the construction industry accounts for 6 per cent – the latter showing growth of just 0.5 per cent. With continued bad news for these two big players, the pound fell sharply, dropping to $1.3373, down 0.3 per cent on the day.
Phil Harris of BLP had this to say about the construction industry: “Although May was a stronger month for commercial activity, the sector remains prone to being buffeted by the political outlook because it lacks the domestic growth pressure prevalent in the housing market. Office space demand in London is declining, retailers continue to hit the headlines with store closures, and while hotels and leisure are proving resilient, overall the sector is not booming.”
Overall, the UK’s economy has shown just a 0.1 per cent growth in the first quarter of 2018, which is the worst growth rate in more than five years. The ONS reported that the goods trade deficit was wider than expected in April, too, standing at £14.03bn, rather than the £11.35bn that analysts had estimated. On a three monthly basis, the value of goods exports, excluding erratics, was down 3.7 per cent, while imports fell 2 per cent, revealing that “the UK is now moving past the recent sweet spot for exporters” as stated by Suren Thiru of the British Chambers of Commerce.
These figures mark a dismal start to 2018’s second quarter, in what looks to be a challenging year ahead for the construction and manufacturing industries.