UK construction growth drops to 11-month low

Growth in the UK construction industry fell to an 11-month low in July as a lacklustre outlook for the economy and heightened political uncertainty deterred new orders, a survey shows today.

The Markit/CIPS UK Construction Purchasing Managers’ Index (PMI) fell to 51.9 from 54.8 in June.

The PMI showed new business volumes declined for the first time since August 2016, hurt by a slowdown in the commercial construction sector.

Reuters commented that the survey is another mixed signal for Bank of England policymakers meeting this week to set interest rates.

On the brighter side, a survey on Tuesday showed British manufacturing growth improved last month thanks to an upturn in exports.

But today’s PMI for construction, which accounts for around 6% of British economic output, suggests a sector hit by uncertainty.

It follows Monday’s survey by the Federation of Master Builders warning that the fall in the sterling exchange rate was causing prices of materials to soar, squeezing margins for a third of small builders and forcing nearly a quarter to raise prices.

"Economic and political uncertainty continues to take its toll," said Mark Robinson, chief executive of local authority-owned procurement company Scape Group. "The pinch from rocketing material costs continues to be felt right the way through supply chains, and along with a shrinking workforce, it’s no wonder that delivery times are extending."

He went on: "Confidence is crucial, and the government must maintain its resolve and press ahead with big infrastructure and housing projects. Recent announcements from the Department of Transport and Gatwick Airport are positive, but the drop in commercial and housebuilding work in today’s figures is very worrying. As pivotal pillars of our economy, ensuring the delivery of new homes and commercial space is vital to the success of UK plc."

Last week the Royal Institution of Chartered Surveyors said demand to rent British commercial property had fallen to a five-year low.

"The combination of weaker order books and sharply rising construction costs provides a concern that an extended soft patch for the construction sector may be on the horizon," said Tim Moore, senior economist at survey compiler IHS Markit, told Reuters.

Growth in the housebuilding sector also cooled, reflecting other signs of a slowdown in the housing market, according to the PMI. On Monday, the Bank of England said mortgage approvals fell to a nine-month low in June.

The waning growth in activity took its toll on construction firms’ confidence about the future, which fell to its lowest level in a year, IHS Markit said.

Image: Storm clouds gathering? Construction underway at Manchester’s Embankment development in 2015 (Mike Peel/CC-BY-SA-4.0)

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