Construction and services sectors slump amid 'Brexit anxiety'

Will Green is news editor of Supply Management
6 July 2016

A further slowing in the UK economy “looks highly likely” following surveys that showed weakening growth in the run-up to the Brexit vote.

Performance in the construction sector was the weakest in seven years in June, while growth in the services sector hit a 38-month low, according to the Markit/CIPS Purchasing Managers’ Indexes.

The surveys were conducted during June but most responses were received prior to the referendum on 23 June.

For construction, the PMI index slumped into contraction to record 46, compared to 51.2 in May and against a neutral reading of 50.

Residential building was the worst performing sub-category, while generally lower levels of activity were linked to deteriorating order books and a lack of new work to replace completed projects.

Firms responded by cutting back on input buying and being more cautious with staff recruitment. Despite lower buying, supply chain pressures persisted and lead times lengthened, which was linked to transportation delays and lower stocks among suppliers.

In the services sector, growth slowed to 52.3 in June, from 53.5 in May, with respondents reporting uncertainty linked to the EU referendum leading to postponed or cancelled orders.

The one exception was manufacturing, where growth hit a five-month high with a reading of 52.1, up on 50.4 in May.

David Noble, group CEO, CIPS, concerning manufacturing, said: “The industry has built some momentum in recent months. Whether this is sustainable in a post-Brexit world as the UK returns to a period of uncertainty is anyone’s guess.”

Concerning the services sector he said: “These subdued figures are a wake-up call to policymakers that fast, decisive action is necessary to prevent further slides in confidence and activity in the key services sector and, by extension, the overall economy.”

Chris Williams, chief economist at Markit, said: “The PMI surveys indicate that the pace of UK economic growth slowed to just 0.2% in the second quarter, with a further loss of momentum in June as Brexit anxiety intensified.

“A further slowing, and possible contraction, looks highly likely in coming months as a result of uncertainty created by the EU referendum.

“However, with the June PMIs having already fallen into territory that would normally be associated with the Bank of England cutting interest rates, it’s unlikely policymakers will wait for more data before unleashing additional monetary stimulus. More policy action is therefore likely in the coming weeks.”

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