UK construction PMI drops as orders suffer worst fall in more than a decade
The pace of UK construction unexpectedly eased back in August, with new orders dropping at their fastest rate in more than 10 years amid worries about Brexit, according to data released on Tuesday.
The Markit/CIPS construction purchasing managers’ index fell to 45.0 last month from 45.3 in July, led lower by the sharpest reduction in new work since March 2009 and missing expectations for an improvement to 46.5.
All three categories of construction work fell in August, led by commercial building, with survey respondents saying that Brexit-related uncertainty had encouraged risk aversion and tighter budget setting among clients. Civil engineering activity also dropped at a relatively sharp pace, while the rate of decline in house building was the least marked.
Duncan Brock, group director at the Chartered Institute of Procurement & Supply, said: "The sector fell deeper into contraction as continuing uncertainty and a weakened UK economy took a sizeable bite out of this month’s construction activity. Inevitably business confidence followed suit, dropping like a brick to its worst since December 2008 and close to the lowest depth seen in the previous recession.
"As Brexit creeps closer and confusion still reigns, this will undoubtedly heap more pressure on the UK Government to create much-needed clarity in the market. The commercial sector particularly has been devastated by reluctant clients fearful of taking a wrong turn in a confusing landscape and delaying project starts, resulting in the fastest drop in new orders since March 2009."
Sterling showed little reaction to the news, trading down 0.5% versus the dollar at 1.1996, having hit its lowest level in three years amid worries about a general election.
On Monday, the IHS Markit/CIPS purchasing managers index for the manufacturing sector for August slid to a seven-year low of 47.4 from 48.0 in July.
Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said the downturn is deepening, though a rapid rebound will emerge if no-deal Brexit risk subsides.
Tombs said the he construction sector could revive quickly if the risk of a no-deal Brexit subsided. "Commercial clients are putting off projects due to Brexit tail risk, not insufficient funds," he said.
"In addition, new work in the housing sector should start to pick up again, given that new mortgage rates have fallen over the last six months, fostering demand. This year’s near-6% increase in public sector gross investment also should continue to underpin the sector."