UK construction activity falls amid political uncertainty, soaring building costs

UK construction activity has fallen to an 11-month low due to a softening of commercial building amid political and economic anxiety, while building material costs rose at the one of the fastest rates seen for six years.

Markit's UK construction purchasing managers' index fell to 51.9 in July from 54.8 the month before, when it was forecast to only ease to 54.0.

With a score above 50 indicating growth, the survey implied pretty weak expansion of the construction sector.

Though the decline was only modest, the fall in levels of commercial work was at the fastest pace for a year, with a number of survey respondents cited delays in decision making by clients linked to worries about the economic outlook and heightened political uncertainty.

Residential building remained the strongest performing category of activity in July, though saw the slowest growth for three months, with only civil engineering seeing an upturn in output growth in July.

Supply chain pressures remained intense, reflecting low stocks among vendors, and materials prices continued to rise at pace.

IHS Markit associate director Tim Moore said the data revealed a growth slowdown in the sector, mainly driven by lower volumes of commercial development and a loss of momentum for house building.

“Worries about the economic outlook and heightened political uncertainty were key factors contributing to subdued demand. Construction firms reported that clients were more reluctant to spend and had opted to take longer in committing to new projects," he said, noting the knock-on impact for job creation and input buying following the largest downturn in order books since August 2016.

“The combination of weaker order books and sharply rising construction costs gives concern that an extended soft patch for the construction sector may be on the horizon.”

Howard Archer, chief economic advisor to the EY ITEM Club, said: “This is a disappointing survey across the board, pointing to the construction sector being hit by increased client caution amid heightened economic and political uncertainties.”

Sam Tombs at Pantheon Macroeconomics said the data suggested the renewed slowdown recorded by the official data in the second quarter will not be short-lived, with the civil engineering sector being propped up by 7% rise in public sector gross investment this year.

"Housebuilding also should continue to grow moderately, supported by the Help to Buy Scheme and shortages of existing homes for sale," he said.

"Nonetheless, the adverse impact of Brexit uncertainty on commercial work likely will grow if, as we expect, exit talks progress slowly. Indeed, more firms will activate Brexit contingency plans as the Article 50 deadline draws closer, freeing up office space and sapping demand for new commercial projects."