Construction sector output ‘falls at steepest rate since April 2009’

(qlmbusinessnews.com via news.sky.com– Tue, 2nd July 2019) London, Uk – –

Fears are growing the UK economy may have contracted in the second quarter of the year as the latest data misses expectations.

Output in the construction sector fell at its steepest rate since April 2009 in June, according to a close-watched activity survey.

The IHS Markit/CIPS purchasing managers' index (PMI) showed declines across the sector over the month – adding to evidence of a wider economic slowdown in the second quarter of the year.

The index for construction showed a reading of 43.1 in June – down from 48.6 in the previous month and way below the expectations of economists.

Anything above 50 indicates growth.

The PMI findings – based on the responses of purchasing managers – suggested business activity and incoming new work both fell at the fastest pace for just over 10 years.

The slide in construction demand across residential, commercial and civil engineering operations was mainly attributed by survey respondents to “risk aversion among clients in response to heightened political and economic uncertainty.”

Continued fog over the UK's departure from the EU has coincided with a sharp easing in demand across the global economy – largely blamed on the US-China trade war.

The UK economy grew by 0.5% in the first three months of 2019 however much of that growth surge was attributed to Brexit stockpiling ahead of the original deadline of 29 March.

The Office for National Statistics (ONS) figures showed construction had flat-lined during January to March with growth of just 0.06%.

The PMIs suggest construction output will have contracted during the second quarter.

There is little to cheer in the sector as the housing market continues to lose steam and businesses hold back on investment decisions.

Separate figures by Nationwide released on Tuesday showed house price growth at an annual rate of 0.5% in June – with London and surrounding areas continuing to see the largest declines in prices.

Shares in housebuilders fell at the open and declined further when the PMI number emerged.

Persimmon was down by more than 2%.

Dr Howard Archer, chief economic adviser to the EY ITEM Club, said: “With the purchasing managers also reporting that manufacturing activity contracted in June and was at a 76-month low, the dire June construction survey fuels belief that the UK economy highly likely contracted in the second quarter.

“Obviously, the performance of the dominant services sector will be important so there will be appreciable interest in the June services purchasing managers survey out on Wednesday – but while services activity is likely to have avoided contraction in the second quarter, we doubt it will have been sufficient to stop GDP contracting given the likely sharp falling back in manufacturing output.

“Specifically, we currently expect GDP to have contracted 0.2% quarter-on-quarter in the second quarter.”

By James Sillars