UK construction shrinks post Brexit

2 August 2016

Building output contracted again in July as uncertainty following the EU referendum result continued to stifle business activity. 

The first Markit/CIPS UK Construction Purchasing Managers’ Index (PMI) conducted entirely after the UK voted to leave the EU, registered 45.9 - a slight drop from June's score of 46.

The result mirrors a fall in the manufacturing PMI released yesterday.

The construction PMI is a monthly poll of buyers designed to gauge the temperature of the industry. An index under 50 indicates contraction, while a score above shows growth.

The latest result signals the fastest overall decline in construction activity since June 2009. 

David Noble, group CEO, CIPS, said: "Though a marginal drop in the index compared with last month, the sector’s downhill course is a seriously disappointing development, with purchasing activity falling for the second consecutive month."

Noble added it was unclear if this downward trend was a short term "aftershock" of the Brexit vote or if it would continue over coming months.

Respondents to the PMI survey said dampened confidence following the referendum had led clients to take a 'wait and see' approach to future construction projects.

"Survey respondents noted heightened risk aversion and lower investment spending among clients, notwithstanding a greater number of speculative enquiries in anticipation of lower charges," said Tim Moore, senior economist at Markit. 

The PMI found commercial building was most affected, seeing its steepest decline in more than six and a half years. Civil engineering activity saw its first drop of 2016 and residential construction also declined, albeit at a slower rate than in June.

As order books weakened, the PMI also found the first decline in employment numbers and new work failed to replace completed projects. However Noble attributed this to firms naturally shedding staff as they kept an eye on margins rather than a shrinking of operations. 

Construction companies also faced increased material costs due to the weak value of the pound, which led some firms to lower stock levels to maintain cash flow.

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