'˜Brexit blot on the landscape' causes headaches for construction sector

Britain's construction sector suffered its weakest growth for six months in September as the 'Brexit blot on the landscape' held back activity, according to a report.

Tuesday, 2nd October 2018, 3:13 pm
Updated Tuesday, 2nd October 2018, 3:17 pm
Library image of a construction engineer at work Photo: Ben Birchall/PA Wire

The closely-watched Markit/CIPS UK Construction purchasing managers’ index (PMI) showed a weaker-than-expected reading of 52.1 in September down from 52.9 in August, with house building losing momentum. The was below a median forecast of 52.5 in a poll of economists. A reading above 50 indicates growth.

There were some positive signs in the survey, such as the strongest new orders since December 2016 and the fastest employment growth since December 2015, which was largely due to the growing numbers of trainees and apprentices.

But the measure of confidence was the second-lowest since February 2013 with companies citing uncertainty about Brexit.

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The report said the September data indicated the sector continues to be in a “downbeat mood”.

“The Brexit blot on the landscape was still in evidence as housing activity slowed to a pre-April growth rate and clients hesitated to place orders,” said Duncan Brock, group director at the Chartered Institute of Procurement & Supply (CIPS).

Civil engineering was the worst-performing sector, as activity declined at a faster rate. A lack of new work to replace completed projects was blamed, after a summer uplift caused in large part by work delayed earlier in the year.

Mr Brock added: “This tale of feast and famine offers little in the way of reassurance and is more about holding on to stable growth than a sprint to the finish.

“The weakest overall activity in six months shows that caution and Brexit concern remain roadblocks to strong growth.”

The slower growth in house building comes as Nationwide Building Society also released data on Tuesday showing property prices edged up just 0.3% month-on-month in September.

Howard Archer, chief economic adviser at EY ITEM Club, said the weaker housing market could continue to act as a drag on construction.

“There is the risk that house building activity could be pressurised by extended lacklustre housing market activity and subdued prices amid challenging fundamentals,” he said.

The PMI survey of firms showed that optimism for the year ahead declined in September. Many companies have expressed concern about the risk of disruption if Britain leaves the EU in March next year without a deal. The construction PMI survey showed widespread capacity shortages remained although the time taken by suppliers to deliver building materials narrowed slightly.

Construction companies cited political and investor concerns about Brexit as a factor in lower confidence.

Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said it was supported by official data which has indicated a decline in new orders and housing starts in the second quarter.

“Accordingly, we doubt that the construction sector will make a positive contribution to GDP (gross domestic product) growth over the next few quarters,” he said.

Input prices also rose at the fastest pace in three months.