Brexit latest: Construction returns to growth in September

The Purchasing Managers’ Index jumped to 52.3 in the month, up from 49.2 in August and a seven-year low of 45.9 in the immediate wake of the 23 June Brexit referendum vote

Ben Chu
Economics Editor
Tuesday 04 October 2016 10:01
Comments
Construction output grew in September for the first time since May
Construction output grew in September for the first time since May

Britain’s beleagured builders unexpectedly returned to growth in September, according to the latest survey snapshot of the construction industry.

The Markit/CIPS Purchasing Managers’ Index (PMI) jumped to 52.3 in the month, up from 49.2 in August and rising from a seven-year low of 45.9 in the immediate wake of the 23 June Brexit referendum vote.

Any PMI reading above 50 indicates expansion. City of London analysts had pencilled in a reading of just 49.

Building again

The improvement was attributed to a recovery in residential building activity. Civil engineering was also up, although commercial construction activity continued to decline, though at a more modest pace.

Tim Moore of IHS Markit said that a number of respondents said Brexit-related anxiety had receded among clients. Around 45 per cent of the firms surveyed expected output to rise in the year ahead, while only 9 per cent anticipated a decline.

“After a few challenging months following the UK’s decision to leave the EU, today’s construction PMI provides a clear indication that the clouds of uncertainty are finally lifting as the construction industry gets back to business,” said Mark Robinson of the Scape Group.

The reading follows a much better than expected PMI manufacturing survey for September released yesterday.

The services PMI for the survey will be released tomorrow.

Another upside surprise there will further cement the view that the UK has easily avoided a return to recession in the third quarter of the year and will likely diminish expectations of another interest rate cut by the Bank of England at its meeting in November.

The economy expanded by 0.7 per cent in the second quarter of 2016.

A sharp deterioration of the PMI indicators immediately following the Brexit vote had prompted many City analysts to forecast a return to recession for the UK. But the survey indicators have bounced back strongly in August and September and the modest amount of “hard” data from the Office for National Statistics covering the period since June has also been positive.

The Bank of England is currently forecasting that the economy will have grown 0.3 per cent in the third quarter of the year.

The latest data from the ONS suggests construction output declined by 0.1 per cent in the second quarter of 2016, following an 0.8 per cent expansion in the first three months of the year. The sector accounts for around 6 per cent of GDP

According to the ONS construction output finally returned to its 2008 level earlier this year, although some industry economists question the accuracy of the ONS statistics.

Finally back to 2008 peak?

The sector is set to receive support from Government policy in the coming months.

The Chancellor, Philip Hammond, yesterday pledged an extra £2bn to facilitate construction on public sector land and also signalled that additional public sector investment in infrastructure will be unveiled in the 23 November Autumn Statement.

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