UK Construction Industry Records Sharp Slowdown in Activity

The UK construction sector has seen a notable slowdown in growth.

Construction PMI data from IHS Markit and the CIPS read at an 11-month low in July with the index falling to 51.9 from 54.8 in June.

Economists were forecasting a more robust reading of 54.5 to be reported.

The PMI is a survey which asks samples of purchasing managers in the construction industry questions about the state of the business.

The results are later collated in an index with results above 50 indicating expansion and those below 50 contraction.

It was a decline in the Commercial Sector which really stuck out as the main cause behind the weakness in the headline figure.

Commercial construction slowed at its fastest pace in 12-months according to Markit amidst signs that many projects were being put on ice due to increased political uncertainty, caused, primarily by Brexit.

“Lower levels of commercial construction were a key factor holding back overall business activity growth in July. Although only modest, the reduction in commercial activity was the fastest for 12 months. A number of survey respondents cited delays in decision making by clients, linked to worries about the economic outlook and heightened political uncertainty,” noted the report from Markit and the CIPS.

The impact on Sterling was however largely negligible owing to construction's relatively small overall share of UK economic activity.

Residential construction activity maintained previous levels by contrast as lack of supply and schemes such as ‘Help to Buy’ helped people onto the property ladder.

The continued decline reflected in July’s figures followed on from a similar slowdown recorded in the second quarter, which suggested the possibility that construction activity might be entering a more protracted downtrend.

The weak weak Pound played a part, by increasing cost inputs as imported raw materials rose in price.

“Meanwhile, input cost inflation remained elevated and close to the peaks seen at the start of 2017, which was partly linked to prices for imported items," read the report. 

Overall, the industry remained positive about the future, however, if somewhat cautiously.

“Construction firms remained upbeat about their growth prospects, but the degree of optimism was the lowest since July 2016. This was attributed to heightened economic uncertainty and subdued confidence among clients,” noted the Markit report.