Shock construction slump in Brexit run-up

Ryan Fowler

July 5, 2016

builder construction worker housebuilding

June was the UK construction industry’s worst month in seven years as Brexit uncertainty saw a shock contraction in the build up to the EU referendum, according to the Markit/CIPS construction purchasing managers’ index. 

The closely watched index fell to 46.0 in June, its lowest level since June 2009. down from 51.2 in May.

Anything above 50 on the index represents an expansion in the sector – below a contraction.

Consumer confidence still lower than before Brexit

Tim Moore, senior economist at Markit, said: “However, the extent and speed of the downturn in the face of political and economic uncertainty is a clear warning flag for the wider post-Brexit economic outlook.

Markit said a number of firms had commented on reluctance among clients to commence new contracts in the run-up to the referendum, as well as continuing uncertainty about the general economic outlook.

Moore added: “Widespread delays to investment decisions and housing market jitters saw the UK construction sector experience its worst month for seven years in June.

“Construction firms are at the sharp end of domestic economic uncertainty and jolts to investor sentiment, so trading conditions were always going to be challenging in the run-up to the EU referendum.

“The vast majority of June’s survey responses were received ahead of the EU referendum, so the worry is that the ensuing political turmoil will hit construction spending decisions for some time to come.

“As a result, the latest figures raise the likelihood that the Bank of England will inject additional stimulus this summer in an attempt to dampen the short-term impact of Brexit uncertainty on the real economy.”

The survey found that construction sector had reacted to the slowdown in demand by cutting input buying and recruitment.

However despite the slump the rate of contraction was still “much slower” than during the last economic downturn.