Construction output saw sharp drop in June

Uncertainty ahead of the EU referendum saw construction output fall at its fastest pace since June 2009, in a "clear warning flag" for the UK economy.

Construction output slowing. Image: HW
Construction output slowing. Image: HW

The latest Markit/CIPS UK Construction Purchasing Managers Index shows falling output across the UK construction sector in June, led by a steep decline in residential building and a reduction in commercial work for the first time since May 2013.

Survey respondents widely linked the downturn in business activity to uncertainty ahead of the EU referendum (just over 80 per cent of survey responses were received before 24 June). Heightened uncertainty also contributed to a further reduction in new invitations to tender. Recruitment levels also slowed and purchasing activity fell for the first time in just over three years.

The seasonally-adjusted index was at 46.0 in June, down from 51.2 in May, dropping below 50.0 for the first time since April 2013. The latest reading pointed to the weakest overall performance for exactly seven years, but the rate of contraction was much slower than seen during the 2008/09 downturn.

Lower levels of activity were overwhelmingly linked to deteriorating order books and a corresponding lack of new work to replace completed projects.

Markit senior economist Tim Moore said: "Construction firms are at the sharp end of domestic economic uncertainty and jolts to investor sentiment, so trading conditions were always going to be challenging in the run-up to the EU referendum. However, the extent and speed of the downturn in the face of political and economic uncertainty is a clear warning flag for the wider post-Brexit economic outlook."

The latest figures increase the likelihood of the Bank of England injecting additional stimulus this summer, he said.

A number of firms commented on reluctance among clients to commence new contracts in the run-up to the EU referendum, alongside ongoing uncertainty about the general economic outlook. Incoming new work has now fallen for two months running, and the latest reduction was the steepest since December 2012.

Sub-contractor usage fell slightly and prices charged by sub-contractors increased at the slowest pace since July 2013. Despite lower input buying, supply chain pressures persisted in June. Moreover, average lead-times from vendors lengthened to the greatest degree since the start of 2016, which survey respondents linked to transportation delays and lower stocks among suppliers.

The latest survey also indicated a drop in business confidence regarding the year-ahead outlook to the weakest since June 2013.

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