UK construction output contracts to lowest level in nearly a year

Output in Britain’s construction sector contracted in February to its lowest level in almost a year as Brexit anxiety continued to weigh on firms as they delayed making decisions on building projects.

The IHS Markit/CIPS UK Construction purchasing managers’ index (PMI) fell to 49.5 in February from 50.6 the previous month.

This missed economists’ expectations of 50.5. A reading below 50 indicates contraction.

February’s construction PMI registered below the 50 threshold for the first time since the weather disruption caused by the Beast from the East in March 2018.

Last month, construction firms saw a steep contraction in commercial building activity and civil engineering.

IHS Markit said uncertainty related to Britain’s impending departure from the European Union slowed decision-making on commercial projects, which led to subdued demand, while a general drop in confidence in the housing market halted residential building projects.

Parliament has been in a deadlock over Brexit since MPs rejected Prime Minister Theresa May’s Withdrawal Agreement with the risk of a no-deal Brexit increasing.

Tim Moore, economics associate director at IHS Markit, which compiles the survey, said: “The UK construction sector moved into decline during February as Brexit anxiety intensified and clients opted to delay decision-making on building projects.

“Risk aversion in the commercial sub-category has exerted a downward influence on workloads throughout the year so far. This reflects softer business spending on fixed assets such as industrial units, offices and retail space.

“The fall in commercial work therefore hints at a further slide in domestic business investment during the first quarter, continuing the declines seen in 2018.

“There were also reports that the more fragile housing market confidence has begun to act as a brake on residential work, which adds to signs that house building has lost momentum since the end of last year. This leaves the construction sector increasingly reliant on large-scale infrastructure projects for growth over the year ahead.”

Mr Moore added that stockpiling by British manufacturers had an adverse impact on transport availability and supplier capacity across the construction supply chain.

Howard Archer, chief economic adviser at EY ITEM Club, said if the UK does leave the EU with a deal at the end of March, construction companies will hope that this reduces uncertainty and increases client willingness to commit to major projects.

“With the economy clearly continuing to struggle in the first quarter amid heightened Brexit uncertainties and slower global growth – after a marked slowdown in the fourth quarter of 2018 – we now believe that the Bank of England is unlikely to hike interest rates before November.”

He said central bank policymakers will “likely wait for some time before edging up interest rates from 0.75% to 1.00% as it will likely want to see sustained evidence that the UK economy is improving”.

Mr Archer added: “There is a genuine chance now that the Bank of England will sit tight on interest rates through 2019 – especially if Brexit is delayed and extends the uncertainty”.