UK Construction Industry Endures Sixth Month of Woe in October 

Image © Adobe Stock

- Construction PMI stablises in October but output still contracts.

- Construction activity, new orders and jobs all fell during October.

- Industry weighs on broader economy at start of the final quarter.

The UK construction industry endured its sixth consecutive month of woe in October, the latest IHS Markit PMI revealed Monday, as domestic political uncertainty and concern over the broader economic outlook weighed on activity. 

IHS Markit's construction PMI came in at 44.2 for October, up from 43.3 previously but a fraction below the market consensus for a reading of 44.3. The rebound follows three consecutive months of decline for the index but nonetheless, marks the sixth month in which it has languished below the 50.0 threshold that separates industry expansion from industry contraction. 

New orders continued to fall in October and firms further reduced workforces in response to uncertainty about the short-term outlook. The civil engineering segement of the industry was again the weakest last month, although commercial construction firms also saw their 10th monthly contraction in output while the rate of decline in the housebuilding industry also picked up. 

PIM surveys measure changes in industry activity by asking respondents to rate conditions for new orders, production, hiring intentions, prices and inventories. A number above 50.0 indicates industry expansion while a number below 50 is suggestive of contraction. The survey results often correlate with official measures of output, although they can often be wide of the mark too.

"The PMI has been too downbeat recently; the official measure of construction output rose by 0.6% on a three-month-on-three-month basis in August, even those the PMI was well below 50," says Samuel Tombs, chief UK economist at Pantheon Macroeconomics. "The sector should revive in 2020, given that the Conservatives no longer are threatening a no-deal Brexit and both the main parties are committing to higher expenditure on infrastructure."

The construction industry has struggled since the June 2016 Brexit referendum, which has hit the commercial construction sector particularly hard, leading the industry to fall into recession in 2017. Output contracted for three consecutive quarters that year before seeing only a tepid and short-lived recovery in 2018, which has since unwound as the Brexit saga rolls on.

Meanwhile, the broader economy's fortune has been little better, even if the construction sector's contribution to it is limited. GDP growth contracted by 0.1% in the second quarter after rising 0.6% during the frist three months of the year, while Pantheon's Tombs tips it to grow by 0.4% in the third quarter and 0.2% in the final quarter. Data covering the three months to the end of September is due to be released later in November and will come as voters prepare to choose a government at the ballot box for a third time since 2015.

"The UK is facing what feels like the most unpredictable election in living memory. As things stand, public opinion points to Boris Johnson's election gamble paying off, but as we learned in 2017, much can change as the campaign unfolds. The UK electorate remains roughly evenly split on Brexit, but this may not be the deciding factor in the election," says Dean Turner, an economist at UBS Global Wealth Management. 

Time to move your money? Get 3-5% more currency than your bank would offer by using the services of a specialist foreign exchange specialist. A payments provider can deliver you an exchange rate closer to the real market rate than your bank would, thereby saving you substantial quantities of currency. Find out more here.

* Advertisement