UK construction sector slumps to decade low

UK construction output plunged to a 10-year low in June, data published on Tuesday revealed, as deepening political and economic uncertainty halted investment.

The IHS Markit CIPS UK construction total activity index came in at 41.3 last month, a sharp decline from May’s 48.6. Analysts had been looking for a rise, to around 49.2.

It was also the fourth time in the last five months that the index has come in below 50.0. A reading above 50 indicates growth, while a reading below signals contraction.

All three construction categories recorded falls in output. The previously strong housebuilding sector reported its largest fall for three years, while commercial work’s decline was the steepest since December 2009. Civil engineering fell at the fastest rate since October 2009.

Total new work decreased for the third month in a row, with the most recent contraction the sharpest rate of decline since April 2009.

Tim Moore, associate director at IHS Markit, said: "Delays to new projects, in response to deepening political and economic uncertainty, were the reasons cited by construction companies for the fastest drop in total construction output since April 2009.

"While the scale of the downturn is in no way comparable that seen during the global financial crisis, the abrupt loss of momentum in 2019 has been the worst experienced across the sector for a decade.

"Worrying signals from the survey’s forward-looking indicators make it almost impossible to sugar-coat the construction PMI data in June."

Duncan Brook, group director at the Chartered Institute of Procurement and Supply, said: "A lack of clarity from policymakers has amplified the poor performance in June. Swift decision-making and a break in the political impasse hold the key to pulling the construction sector out of the quicksand."

Samuel Tombs, chief UK economist at Pantheon Macroeconomics, called the PMI data a "worrying step change in the impact of the Brexit uncertainty".

He continued: "The threat of a no-deal Brexit reportedly has dampened demand for commercial projects, while the risk of a Corbyn government following a general election has hindered activity in civil engineering."

However, Tombs argued that the downturn could be brief: "Employment held steady in June, while expectations for levels of future activity improved slightly and were in line with those in the last six months. Builders cited impending infrastructure projects as a key reason to remain optimistic. Many clients also reportedly have scoped out projects, but are waiting until political uncertainty subsides.

"So if, as we expect, the Brexit deadline is pushed back again in October, the construction sector should experience a quick recovery around the turn of the year."

Blane Perrotton, managing director of surveyors Naismiths, said: "This is less of a slide than a sledgehammer. The construction industry has once again been ambushed by plummeting investor demand.

"Even looking beyond the headline numbers, there is little to cheer. New orders, confidence levels and recruitment are all down. Finance remains cheap and relatively plentiful, but unfortunately this counts for little when investor confidence is being pummelled by political uncertainty."

The data - which followed weak manufacturing numbers on Monday - depressed the pound, with concerned traders sending it to a fresh two-week low. By 1000 BST, sterling was trading at just over $1.26 and against the euro it had fallen to 89.47.