EU referendum: UK construction sector slows in May amid Brexit uncertainty

Britain's construction sector slowed in May as new orders fell for the first time in three years, according to a survey released on Thursday (2 June 2016) from Markit Economics and the Chartered Institute of Procurement & Supply.

The Markit/CIPS UK Construction Purchasing index fell to 51.2 in the month compared with a 52 reading recorded in April, which analysts expected would remain unchanged.

Output growth eased to its weakest in almost three years, while the sub-index tracking incoming new work declined for the first time since April 2013. Markit said the report indicated a general slowdown in market conditions and delays to client decision making ahead of the EU referendum.

Among the three broad areas of construction activity, residential building work increased at one of the weakest rates seen since early 2013, while growth of commercial activity was the slowest in almost three years.

Civil engineering fared even worse, and was the worst-performing category for the second consecutive month amid a lack of client confidence, which was exacerbated by heightened uncertainty regarding the economic outlook.

"Construction companies are facing a challenging second quarter of 2016, with growth headwinds apparent across all three key areas of activity," said Tim Moore, senior economist at Markit.

"May data signalled the worst month for commercial building since June 2013, while residential work and civil engineering activity both saw a renewed loss of momentum. Survey respondents noted that the forthcoming EU referendum has disrupted new order flows and the timing of client decision making in particular."

However, construction firms remained upbeat about their outlook, with 51% of the respondents forecasting a rise in output over the next 12 months, while 14% expects a decline in production. Optimism over the short-term outlook translated into an increase in job creation, which reached a four-month high in May.

Meanwhile, the survey added construction firms reported a slight deterioration in supplier performance, which extended the downward trend recorded in the sub-index since September 2010.