UK construction PMI remains in contraction territory

The UK construction sector remained in contraction territory in November amid uncertainty about Brexit and the upcoming general election, according to figures released on Tuesday.

The Markit/CIPS construction purchasing managers’ index edged up to 45.3 from 44.2 in October, beating expectations for a reading of 44.5 and signalling the slowest drop in overall construction output for four months. However, it remained below the 50.0 level that separates contraction from expansion.

All three areas of construction recorded a fall in output, with civil engineering the worst-performing category, followed by commercial building. A much slower decline in housing activity helped to moderate the overall drop in UK construction output signalled by the survey.

Duncan Brock, group director at the Chartered Institute of Procurement & Supply, said: "Brexit uncertainty, an impending General Election and wet weather all combined to keep the construction sector firmly in its contraction hole last month with purchasing, output and new orders falling again.

"Construction firms have not seen dwindling new orders for this length of time since 2013, as clients continued to defer spending large and small, citing political indecision as the cause of their non-committal. Preferring to hold on to cash reserves rather than spend in the current climate, this also translated into tighter job hiring strategies."

Brock said employment levels were cut again in November and contributed to the longest period of job shedding for more than eight years.

Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said the construction sector was still weighed down by Brexit uncertainty, but next year should be better.

"The downturn in construction activity appears to be easing and sustained growth should return next year. Construction activity declined in November at the slowest rate since July, led by a jump in the housing activity index to 48.0, from 45.0. The civil engineering activity index rose to 42.4, from 40.8, but the commercial activity index fell to 44.5, from 44.9; output in both these sectors remains greatly dampened by Brexit and broader political uncertainty.

"A swift recovery in the next few months isn’t likely, given that the new orders index declined to 43.9 in November, from 44.6 in October. But the construction sector should benefit from much stronger growth in public sector net investment in the fiscal year beginning in April, whichever party wins the next election."