Shock contraction for construction as confidence slides

● Markit/cips survey gives negative below-50 reading for building sector

Activity in Britain’s construction industry went into reverse for the first time in 13 months in September as a fall in new orders and civil engineering work dragged on the sector.

The Markit/cips UK Construction purchasing managers’ index (PMI) slid sharply to 48.1lastmonth,downfrom51.1 in August and well below City expectations for the industry – 6 per cent of the economy – to have trod water.

Any reading above 50 indicates growth, but this was the first contraction in activity since August 2016 following nervousness among builders’ clients after the Brexit vote.

“The construction sector is entering its own recession,” said Pantheon Macroeconomics economist Samuel Tombs. “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.”

The pound dropped in the wake of the construction PMI data, having traded flat against its peers ahead of its release.

Sterling subsequently dropped 0.2 per cent versus the US dollar to $1.32 and fell 0.2 per cent against the euro to trade at 1.128.

Liberal Democrat leader Sir Vince Cable commented: “A year ago ministers promised to get Britain building again, but their plan now has severe subsidence.

“These figures are much worse than economists predicted and builders report that confidence is fragile.”

Cable added: “Brexiteers suggest that Brexit fears are not acting as a brake on the economy. But builders now downing tools would respectfully seem to disagree.”

The survey said September was a “difficult month” for the sector, having suffered from a fall in input buying and new work, which saw its third straight month of declines.

Tim Moore, an associate director at IHS Markit and author of the report, said: “A shortfall of new work to replace completed projects has started to weigh heavily on the UK construction sector.

“Aside from the soft patch linked to spending delays around the EU referendum, construction companies have now experienced their longest period of falling workloads since early-2013.”

Respondents said the drop in workloads was linked to fragile confidence and “subdued risk appetite” among their clients, particularly in the commercial building sector which suffered the second sharpest decline since February 2013.

The industry also experienced the sharpest fall in civil engineering work since April 2013 as a lack of new infrastructure projects failed to take the place of completed contracts.

House building was the only sub-sector that experienced growth last month, and even then saw growth levels hit a six-month low amid fears over “less favourable market conditions” in the months ahead.

Overall, there was a weak rise in job creation, and subdued demand has been blamed for another fall in the use of subcontractors.