Brexit blamed as UK construction sector contracts
UK construction looks like it’s heading into a recession. And Tory government in-fighting isn’t helping.
A new survey of the UK construction sector shows it’s not just slowing down, it’s also shrunk. The Purchasing Managers’ Index (PMI) for the construction sector fell to 48.1 in September, below the 50 threshold that reflects no-change. PMI data for the sector in recent months, whilst indicating a slowdown, still registered a reading of above 50 meaning it was at least growing. The report by IHS Markit and CIPS said the September data suggests construction is now going into reverse gear.
Commenting about the survey results, CIPS director of customer relationships Duncan Brock said:
“A dismal picture of construction emerged this month as the sector showed signs of worsening business conditions across the board. With the biggest contraction in overall activity since July 2016, and a drop in new orders, optimism was in short supply.”
“Respondents pointed to obstructive economic conditions and the Brexit blight of uncertainty, freezing clients into indecision over new projects. Even housing, the stalwart of the construction sector stuttered with a dwindling performance, but civil engineering was the biggest victim falling to its weakest level for four and a half years.”
And the outlook for the sector isn’t looking much brighter. Samuel Tombs, chief UK economist at Pantheon Macroeconomics said the below 50 reading suggests the sector is heading for a recession.
UK construction PMI slipped below 50 in Sep, suggesting sector heading for recession. Output on course to fall by c.0.5% in Q3, same as Q2: pic.twitter.com/yAY8eJJHod
— Samuel Tombs (@samueltombs) 3 October 2017
But it’s not just Brexit that could hamper any potential recovery. Yesterday, the British Chambers of Commerce warned that government in-fighting “only served to undermine business confidence, not just on Brexit negotiations, but also on the many issues where firms need to see clear action from government closer to home.” And as today’s Guardian business live blog reports, Manuel Ortiz-Olave, a market analyst at Monex Europe also noted problems in the Tory party. In comments about the construction sector survey, Ortiz-Olave said: “The data comes at a terrible time considering how poorly the latest rounds of macro data have performed, and also now that a potential crisis is brewing in the Tory party.”
It’s clear the UK economy is experiencing a negative impact from Brexit uncertainty. But it also seems the government is not helping matters.