UK construction activity falls again as Brexit uncertainty deepens

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UK construction, Brexit,
© Madrugadaverde

The recent soft patch for UK construction output continued during March, as Brexit uncertainty causes concern among clients

The seasonally adjusted IHS Markit/CIPS UK Construction Total Activity Index posted 49.7, up marginally from 49.5 in February but still below the 50.0 no-change threshold.

The sustained decline in total UK construction activity represented the first back-to-back fall in output levels since August 2016, although the rate of decline remained only marginal in March. Commercial construction was the worst performing area during the latest survey period, with business activity dropping to the greatest extent since March 2018.

There were widespread reports that Brexit uncertainty and concerns about the domestic economic outlook had led to risk aversion among clients. Civil engineering activity also fell in March, although the rate of decline eased since February.

March data revealed a marginal increase in new work received by UK construction companies, with the rate of expansion remaining subdued in comparison to the long-run survey average. Survey respondents commented on intense competition for new work and a reluctance among clients to commit to major spending decisions in March.

Meanwhile, business optimism edged up from the four-month low seen during February. However, the degree of positivity remained much weaker than the long-term survey average. A number of construction companies noted that economic and political uncertainty had weighed on business expectations for the next 12 months.

Joe Hayes, economist at IHS Markit, said: “Fears that the recent weakness of the UK construction sector may not be just a blip, but a sustained soft patch, were further fuelled by latest data.

“The outlook was subsequently underwhelming by historical standards, with the unsettled political and economic environment keeping business confidence below its long-run average.”

Phil Harris, director at BLP Insurance, commented: “After slipping into contraction last month, it was unsurprising to see little positive momentum in today’s PMI figures. The ‘Beast from the East’ ravaged the sector last March, but a year on and the market has been snowed in by Brexit.

“Ongoing negativity was added by Interserve, the second significant construction player after Carillion to dance on the edge of the abyss. The lenders’ bailout may have averted disaster but uncertainty remains rife for subcontractors worried about getting their pay cheques, let alone the sustainability of the big players’ business models.

“With market sentiment long priced in, any respite from Brexit could see a strong bounce back in the coming months, but inertia and uncertainty remain for now.”

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