UK construction activity moves closer to stabilisation in August

Activity in the UK construction sector moderated in August, according to data released on Friday.

The Markit/CIPS UK construction purchasing managers’ index rose to 49.2 from July’s 85-month low of 45.9, beating economists’ expectations for a reading of 46.1.

The latest reading signalled the slowest past of decline since the downturn began in June, but the index remained below the 50.0 mark that separates contraction from expansion.

New order volumes moved closer to stabilisation, with the latest reduction the least marked since May. This contributed to a renewed rise in staffing levels across the construction sector and a rebound in business expectations for the next 12 months.

Sub-sector data pointed to much slower reductions in housing activity and commercial building than in July. In both cases, the rate of contraction last month was the slowest for three months.

In civil engineering, meanwhile, activity stabilised in August following a reduction during the previous month.

Tim Moore, senior economist at Markit, said: “The downturn in UK construction activity has eased considerably since July, primarily helped by a much slower decline in commercial building. Construction firms cited a nascent recovery in client confidence since the EU referendum result and a relatively steady flow of invitations to tender in August.

“However, the latest survey indicates only a partial move towards stabilisation, rather than a return to business as usual across the construction sector. There were still widespread reports that Brexit uncertainty had dampened demand and slowed progress on planned developments, especially in relation to large projects. As a result, total new order volumes continued to fall during August, which stands in contrast to the three-year run of sustained growth seen prior to May 2016.”

Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said: “The construction sector’s downturn appears to have eased in August, although the PMI still is well below the 55 level that in practice has been the threshold between expansion and contraction in activity.”

“Looking ahead, construction will continue to struggle until business confidence improves. The government’s intention to extract a bespoke Brexit deal suggests that negotiations with the EU will be protracted and businesses will lack clarity over the medium-term outlook for a long time.”