British construction companies report sharpest fall in building activity

The UK’s construction companies in September reported the sharpest fall in activity since just after June 2016’s Brexit vote, as clients put projects on hold due to uncertainty over the economy.

Although construction makes up just 6% of the UK economy, the survey suggested it was likely to drag on official third-quarter growth figures, just as the Bank of England gets ready to raise interest rates.

The IHS Markit-CIPS construction purchasing managers’ index (PMI) sank to 48.1 in September from August’s reading of 51.1, its lowest since July 2016. Anything below 50 is considered a contraction.

“The construction sector is entering its own recession. The government’s shift to a more accommodating stance in Brexit talks has done little to convince builders that clients will sanction delayed projects soon,” said Samuel Tombs of Pantheon Macroeconomics.

IHS Markit said the prospect that the Bank of England will raise rates next month for the first time in a decade was also a factor behind slower house building.

Business investment overall has grown since the Brexit vote, but many business leaders say the UK government is not making enough progress in Brexit talks with the EU.

Construction has long lead times for projects, and relies heavily on labour from the EU. It has been particularly hurt.

Expectations for the future were at their second-lowest level since 2013, the survey also showed.

However, shares in housebuilders have gained recently after the government announced plans to revive a £10bn (€11.3bn) housebuilding subsidy.

The manufacturing PMI published this week showed a slowdown in growth but remained solid, and a survey of the UK’s huge services industry due later today will give a clearer idea of third-quarter growth.

“Following on from a softer manufacturing survey for September, the weak construction survey fuels concern that an already lacklustre UK economy could be faltering,” said Howard Archer, chief economist at consultancy EY ITEM Club.

The UK economy has suffered its weakest growth so far this year since 2012.

Meanwhile, the Bank of England said Brexit poses risks to the ability of UK firms to borrow from EU banks and to some clearing activity which might have to relocate from London once the UK leaves the EU.

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