UK construction PMI slips to three-month low in December

The Markit/CIPS UK construction total activity index fell to 52.8 from 53.4 in November, remaining above the 50.0 level that separates contraction from expansion for the ninth consecutive month but a touch below expectations for a reading of 52.9.

The rate of expansion was the slowest since September as subdued demand conditions led to softer output growth. In addition, there were also some reports that unusually wet weather had acted as a brake on construction work.

Commercial building was the worst-performing category, with activity expanding at the slowest rate since last May. Work on civil engineering projects, however, was the strongest-performing area of construction activity at the end of last year, with growth the fastest for just over one-and-a-half years.

Tim Moore, economics associate director at IHS Markit, said: "UK construction firms signalled a slowdown in housing and commercial activity growth during December, which more than offset a strong performance for civil engineering at the end of 2018. Subdued domestic economic conditions and an intense headwind from political uncertainty resulted in the weakest upturn in commercial work for seven months."

He said optimism levels remained subdued in relation to those recorded by the survey over much of the past six years, largely due to concerns that Brexit uncertainty will continue to encourage delays with decision-making, especially on commercial projects.

Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said activity was broadly stable but growth should return this year.

"The construction sector has had little to cheer recently, but 2019 should be a better year," he said.

"Looking ahead, optimism among builders about the outlook for activity over the next 12 months rose to its highest level since April. While many were concerned by Brexit, others anticipated winning work related to some big-ticket transport and energy infrastructure projects in 2019. In addition, a 10.4% year-over-year jump in public sector gross investment in 2019/20 is set to boost the sector.

"We also still see scope for business investment to rebound later this year - provided a no-deal Brexit has been averted - given that firms' profit margins are relatively healthy and their balance sheets are awash with cash. The construction sector’s recovery, however, will be constrained by a rise in finance costs if, as we expect, the MPC raises Bank Rate by 50 basis points this year."