UK construction sector weighed down by Brexit uncertainly - survey

The UK construction sector continued to struggle in October, with civil engineering declining at the fastest rate for a decade and firms across the board reducing workforces.

The IHS Markit CIPS UK Construction Total Activity Index was 44.2, a rise on September’s 43.3 and marginally ahead of consensus for 44.1. But it still remained well below 50.0; a reading above 50.0 indicates growth, while anything below is a contraction.

Overall volumes of work fell for the sixth consecutive month, and there was a sharp drop in new work. Construction companies also continued to trim workforces. Employment numbers have now declined every month since April.

Civil engineering was the worst-performing area, with business activity falling at the sharpest pace since October 2009. House building was also down, however, with the drop in residential work the greatest recorded for over three years. Commercial construction fell for the tenth month running, although the fall was at the slowest rate since May.

Tim Moore, economics associate at IHS Markit, said political uncertainty and subdued economic conditions were holding back sales.

“There are clear signs that construction firms are positioning for an extended soft patch for project starts, as highlighted by further decline in purchasing volumes and another month of cuts to workforce numbers through the non-replacement of voluntary leavers,” he added.

Duncan Brook, group director of the Chartered Institute of Procurement and Supply, called the sector’s decline “distressing”.

“Future optimism remained at 2012 levels as the deep-seated Brexit gloom dampened down expectations. To say these figures are disappointing is a big understatement," he said.

"Given that the next political hurdle is December’s general election, all eyes will be on the new administration and clear direction, because at the moment, there is little insight into what could possibly pull the sector out of its ditch.”

Samuel Tombs, UK chief economist at Pantheon Macroeconomics, said: “The PMI continues to suggest that the construction sector is mired in recession. The PMI is consistent with construction output falling at a 2.0% quarter-on-quarter rate in both the third and fourth quarters, building on the second quarter’s 1.3% decline.”

However, he added that respondents had attributed some of the drop in activity in October to unusually wet weather, and that the sector “should be revived in 2020, given that the Conservatives are no longer threatening a no-deal Brexit and both the main parties are committing to higher expenditure on infrastructure. The recent fall in mortgage rates also should foster a recovery in housing demand next year.”

Joshua Mahony, senior market analyst at IG, said: “Despite [October’s] improved figure, the sector is heavily contracting and there are precious few signs of a reversal to that trend right now. For the most part, we will need to see the outcomes of the election, with spending on infrastructure projects and housing likely to be key for the sector.”