UK construction sector shrinking at fastest rate since 2009

Ryan Fowler

August 2, 2016

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The UK construction industry shrank at the fastest rate in seven years in July following the Brexit vote, according to construction PMI data from Markit/CIPS has revealed.

The Markit/CIPS UK Construction Purchasing Managers’ Index (PMI) inched down to 45.9 in July from 46.0 in June — the lowest reading since June 2009.

Commercial work, which accounts for almost a third of total new construction work, contracted at the fastest rate since December 2009.

ONS: July construction output flatlines

Chris Williamson, of Markit, said the government needs to find “new creativity in finding ways to stimulate demand”.

He said: “The extent of any downturn remains highly uncertain, and dependent on any policy reaction to the weak data. It seems almost a foregone conclusion that this week will see the Bank of England slash its growth forecasts and take interest rates down to a record low of 0.25%. Policymakers will also no doubt discuss the possibility of further non-standard measures such as additional quantitative easing and a revamping of the Funding for Lending Scheme. Pressure has mounted, however, for policymakers to show new creativity in finding ways to stimulate demand.”

But Williamson also warned that the risk of a recession was also rising.

He added: “UK construction activity fell sharply for a second successive month in July, pointing to an ongoing impact of Brexit-related worries on the economy that raises the risk of a recession.

“The Markit/CIPS Construction PMI edged lower from 46.0 in June to 45.9 in July*, signalling a rate of decline not seen since June 2009.

“While we remain cautious about reading too much into the survey signals from months in which both political and economic uncertainty was so intense, the data raise the prospect of the economy sliding into decline in the third quarter and entering recession.”