Brexit anxiety takes its toll as construction sector falters
By Abigail Townsend
Date: Monday 04 Feb 2019
(Sharecast News) - Momentum in the UK construction sector stalled in January, as Brexit uncertainly saw nervous clients put projects on hold.
The IHS Markit/CIPS UK Construction PMI for January came in at 50.6, down from December's figure of 52.8 and below analyst expectations; most had been looking for a more marginal reduction, to around 52.6.
A reading above 50 indicates growth, while one below 50 indicates a contraction.
Tim Moore, economics associate director at IHS Markit, said: "UK construction growth shifted down a gear at the start of 2019, with weaker conditions across all three main categories of activity."
Residential building, the strongest performing segment, recorded the slowest expansion since March 2018. Civil engineering showed a marginal increase, but there was a decline in commercial construction projects, the first for ten months.
IHS Markit said anecdotal evidence "suggested Brexit-related anxiety and associate concerns about the domestic economic outlook continued to weight on client demand".
New business growth slipped to an eight-month low.
Duncan Brock, group direct at the Chartered Institute of Procurement & Supply, said: "The sector suffered a sharp drop in output growth in January, and the softest rise in purchasing volumes since September 2017, as Brexit continues to hamper progress and dampen client demand."
Moore added: "Business expectations for the year ahead slipped to a three-month low and remained subdued in comparison to historic trends in January. Positive sentiment towards the outlook for civil engineering work remains a key factor in helping to support business sentiment across the construction sector, according to survey respondents."
Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said: "Uncertainty about Brexit has snuffed out the recovery in the construction sector. The total activity level dropped to its lowest level since the March 2018 snow storms and is now below the 52 level, which in practice has separated rising from falling construction output in the past.
"More than in other sectors, the outlook for the construction sector is quite binary, based on the Brexit path chosen by politicians." He argued that a no-deal Brexit could see the sector "slide into another recession" but if a deal was signed off, the sector would likely "enjoy strong growth soon".
Blane Perrotton, managing director of property consultancy Naismiths, said: "It is little wonder optimism is so fragile. Last week official data confirmed our industry has the highest insolvency rate of any sector, and nearly 3,000 construction firms went to the wall in 2018.
"More worrying still is the slowdown in housebuilding activity, which for much of 2018 provided a 'get out of jail card' for an otherwise embattled industry.
"Input cost pressures are easing, but this is a modest silver lining; 60% of Britain's construction material imports come from the EU, meaning the sudden imposition of WTP tariffs in the event of no-deal Brexit would hit hard."
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