UK construction sector shakes off Brexit worries but recovery remains fragile

Britain's construction sector recorded a marginal fall in activity in August but was on firmer ground than in the previous month, a survey released on Friday (2 September) by IHS Markit Economics showed.

Markit's latest Purchasing Managers' Index (PMI) for the construction sector remained below the 50 threshold that signifies expansion for the third consecutive month, but rebounded from July's seven-year low of 45.9 to 49.2 last month.

The figure was comfortably ahead of the 46.5 reading analysts expected and signalled the slowest pace of decline since the downturn began in June.

New order volumes also fell, but the latest reduction was the least marked since May, which led to an increase in staffing levels across the construction sector and a rebound in business expectations for the next 12 months. However, latest data indicated a further steep acceleration in input cost inflation.

"The latest survey indicates only a partial move towards stabilisation, rather than a return to business as usual across the construction sector," said Tim Moore, senior economist at Markit.

"There were still widespread reports that Brexit uncertainty had dampened demand and slowed progress on planned developments, especially in relation to large projects."

Housing activity and commercial building both slowed down but at a much less severe pace than those recorded in July, with both sub-sectors recording the slowest rate of contraction in three months in August. Meanwhile, civil engineering activity stabilised following a reduction during the previous month.

Reports from survey respondents suggested that Brexit uncertainty continued put the brakes on the construction sector during August, especially in terms of house building and commercial work, Markit added. However, a number of firms noted that sales volumes had been more resilient than expected.

"The move towards stabilisation chimes with the more upbeat UK manufacturing PMI data for August, and provides hope that the near-term fallout from Brexit uncertainty will prove less severe than feared," added Moore.