UK construction sector falters as Brexit worries hit home
The UK’s construction industry was “teetering on the edge” of contraction last month, according to a survey released on Friday, as Brexit and the surrounding political uncertainty curtailed investment.
The IHS Markit/CIPS UK Construction headline PMI for January was 50.2, down from 52.2 in December and marking a four-month low. It was also well below the consensus estimate of 52.0.
Residential building activity slipped into decline, while overall, total industry activity barely rose.
Sam Teague, economist at IHS Markit, called it a “difficult start to 2018,” adding: “A contraction in house building added to lacklustre commercial building and civil engineering markets, and reduced inflows of new work suggest overall activity could slip into decline in February.
“Furthermore, cost pressures remain intense, fuelled by shortages of input materials and high costs for imported goods.”
Duncan Brock, director of customer relationships at CIPS, said: “Any hopes for a stellar start to the year were eclipsed by a surprisingly poor show from the housing sector, offering its worst performance since July 2016.
“With construction teetering on the edge of contraction, this surprise outcome will serve as a jolt to policymakers, that the impact of political and economic uncertainty remains large.”
A PMI above 50 indicates expansion, while anything below represents contraction. But Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said: “All readings below 52 have signalled declining output in practice.
“The future activity index rose to its highest level since June, reflecting builders’ hopes that the political uncertainty that is causing many firms to delay investments will ease later this year once the next round of Brexit talks gets underway.
“But activity is likely to fall further over the coming months: the new orders index plunged to 48.8 from 53.1 in December.
“We expect the construction sector to remain in the doldrums throughout 2018.”
Construction accounts for around 6% of the country’s economic output.
The downbeat data knocked sterling in morning trading, sending it lower against both the dollar and the euro.