Britain’s construction industry “dropped like a stone” in June to record its worst monthly performance in more than 10 years as firms blamed the Brexit crisis for a lack of new work.
Housebuilders joined civil engineering firms and commercial building contractors to warn that a wait-and-see approach to commissioning projects across the public and private sectors had hit the industry.
Most construction firms reported they were retaining staff to be ready for a conclusion to the Brexit talks but, in the meantime, the general slowdown in the economy and the possibility of leaving the EU without a deal was dampening demand.
The IHS Markit/Cips construction purchasing managers’ index (PMI) plunged to 43.1, the lowest reading since April 2009 when the country was gripped by the global financial crisis. A PMI figure below 50 shows the sector has contracted.
Q&AWhat are PMIs?
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The purchasing managers' indices, or PMIs, track services sector companies, manufacturers and building firms around the world.
They measure activity, output, business confidence and hiring levels, to produce a health check on how these sectors are performing.
PMIs are compiled each month from interviews with 'purchasing managers' at thousands of companies. They produce a single headline figure – anything above 50 indicates a sector is growing, while a figure below 50 shows a contraction.
Economists watch these surveys closely as they look ahead to coming months, while the official data, such as gross domestic product and retail sales, tends to be more backward-looking.
Last month, a combination of construction, services and manufacturing sector surveys indicated the economy was at its weakest in May since 2012. Analysts expect the downturn to continue after the sharpest drop in factory output in June for more than six years, following figures for May that show a fall in mortgage lending and the lowest level of growth in consumer borrowing in more than five years.
The fall in housebuilding was the largest reported for three years, which construction companies linked to a weaker outlook for residential sales.
Samuel Tombs, the chief UK economist at Pantheon Macroeconomics, said the possibility a Jeremy Corbyn-led Labour party might win an autumn election was dampening demand for large-scale private sector civil engineering projects.
“All three main sub-sectors – housebuilding, commercial and civil engineering – reported sharp falls in activity. The threat of a no-deal Brexit reportedly has dampened demand for commercial projects, while the risk of a Corbyn government following a general election has hindered activity in the civil engineering sector,” he said.
“Construction firms, however, expect the current downturn to be brief; employment held steady in June, while expectations for levels of future activity improved slightly and were in line with those in the last six months.”
Duncan Brock, a director at the Chartered Institute of Procurement & Supply, said: “Purchasing activity and new orders dropped like a stone in June as the UK construction sector experienced its worst month for a decade.”
He added that further delays to new orders and larger contracts had taken their toll on the industry: “A lack of clarity from policymakers has amplified the poor performance in June. Swift decision-making and a break in the political impasse hold the key to pulling the construction sector out of the quicksand.”
Tim Moore, an associate director at IHS Markit, said the deepening political and economic uncertainty were the main reasons cited by construction companies for the fastest drop in total construction output since April 2009. “While the scale of the downturn is in no way comparable with that seen during the global financial crisis [when the index plunged below 30], the abrupt loss of momentum in 2019 has been the worst experienced across the sector for a decade,” he said.