UK construction sector struggles as Brexit uncertainty mounts

The IHS Markit/CIPS UK Construction PMI for September was 52.1, down from 52.9 in August and the weakest rise in output for six months.

The rate of new order growth picked up to its strongest since December 2016, which respondents attributed to resilient demand and an increase in invitations to tender. There was also a rise in staffing numbers, the fastest since December 2015.

But despite this, overall business optimism remained at its second-lowest level since February 2013.

Duncan Brock, group director at the Chartered Institute of Procurement & Supply, said: “Despite the biggest rise in new orders since December 2016, the sector remained in a downbeat mood.

“A cause of this malaise pointed to increased cost burdens, with both fuel prices on the rise and acute shortages in raw materials, as supplier delivery times have lengthened to an extent not seen since 2015. The Brexit blot on the landscape was still in evidence as housing activity slowed to a pre-April growth rate and clients hesitate to place orders.

“This tale of feast and famine offers little in the way of reassurance. The weakest overall activity in six months shows that caution and Brexit remain roadblocks to strong growth.”

The data helped drag listed housebuilders into the red, and weighed on an already struggling pound, helping to send it below $1.30.

Joshua Mahony, market analyst at IG, said: “Yesterday’s surprisingly positive manufacturing PMI has been followed by a weaker construction PMI figure, with the survey hitting a six-month low amid weakening business optimism and a loss of momentum across the board.

“Coming just a day after the government cited plans to tax international buyers of UK property, it comes as no surprise to see the homebuilders back in the red today.”

Samuel Tombs, chief UK economist at Pantheon Economics, said that “the sector’s revival over the summer largely was driven by the displacement of activity from earlier in the year due to the bad weather. The sector is now treading water; a 52 level historically has separated expansion from contraction.

“The fall in optimism among builders suggests most expect demand to deteriorate again soon. Such pessimism is supported by recent official data showing new construction orders were down 7.4% year-over-year in the second quarter, while new housing starts were down 4.1%.

“Accordingly, we doubt that the construction sector will make a positive contribution to GDP growth over the next few quarters.”