Worries about the political and economic outlook in June plunged the UK construction sector into its steepest decline since the recession that followed the financial crisis.
The IHS Markit/CIPS UK Construction Purchasing Managers’ Index (PMI) tumbled to 43.1, down from 48.6 in May, widely undershooting economists’ forecasts. The latest measure of output is the worst since April 2009 and far below the 50 level that indicates no change from the previous month.
Survey respondents attributed the contraction mainly to risk aversion among clients as they struggle to predict the outcome of Brexit and the future direction of the economy.
Incoming new work fell at the fastest pace in a decade, pointing to little chance of recovery in the sector anytime soon. Likewise, the PMI’s measure of business optimism held close to May’s seven-month low.
“While the purchasing managers’ surveys can sometimes overstate economic developments at particularly good or bad times, it is hard to find anything of comfort in this release,” EY Item Club said in a comment.
Construction accounts for only for 6 per cent of Britain’s GDP, but the PMI for the larger manufacturing sector also revealed a sharp drop in output in June. EY Item Club said the two surveys support its view the economy shrank slightly in the second quarter.
Within the overall construction activity, housebuilding recorded the largest decrease in three years, linked partly to a concerning outlook for residential sales. Commercial and civil engineering work – the other two categories – also fell.
The PMI for services, which make up almost 80 per cent of the UK economy, is due on Wednesday. Economists predict it will show hardly any growth in the sector last month.
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