Construction activity declines as Brexit uncertainly hits home

The construction sector saw activity fall away in February, data showed on Monday, the first decline for nearly a year, as concerns over Brexit saw clients put projects on hold.

The IHS Markit/CIPS UK construction PMI was 49.5, down from 50.6 in January and the first fall since March 2018, when the sector was hit by heavy snow storms. Stripping out this one-off weather-related decline in output, February’s reading was the lowest since September 2017. Analysts had been looking for a reading of around 50.5.

A reading above 50 indicates growth while below 50 indicates contraction.

IHS Markit/CIPS research found anecdotal evidence from survey respondents "that Brexit uncertainty had slowed decision-making on commercial projects" and had subdued client demand.

The index measuring business expectations for the year head remained positive, but the degree of confidence is now at a four-month low and is below the long-run survey average. Softer demand saw input buying fall for the first since September 2017.

Duncan Brock, group director at the Chartered Institute of Procurement and Supply, said: “Commercial and civil engineering activity was pushed into the red, as client uncertainly over placing new orders left its mark. This meant the relatively weak residential building sector was the best performer. However, with consumer confidence also waning, housing is likely to follow suit in the coming months.”

Tim Moore, economics associate director at IHS Markit, attributed the decline to “Brexit anxiety”. He continued: “Risk aversion in the commercial sub-category has exerted a downward influence on workloads throughout the year so far. This reflects softer business spending on fixed assets such as industrial units, offices and retail space.”

David Cheetham, chief market analyst at xtb, said: “The outlook for the construction sector is rather bleak. The fall last March was attributed to unseasonably late snowfall, but this time no such excuses can be rolled out.”

However, Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said: “Looking ahead, we continued to expect a Brexit deal to be signed off before the summer. With profits markets high and borrowing costs still low, capex likely will rebound in the second half of this year. A 10.4%. year-over-year jump in public sector gross investment in 2019/20 will also provide a favourable tailwind.

“Accordingly, we continue to expect the construction sector to revive in the second half of this year.”