Brexit worries see dip in construction growth and orders

Growing concerns about a potential Brexit vote later this month helped drive the UK's construction industry to its weakest performance for almost three years in May, a key survey has revealed.

The construction sector saw its weakest performance for almost three years. Picture: Christopher Furlong/Getty Images

The closely-watched Markit/Cips report also showed that incoming new work in the construction sector fell last month for the first time since April 2013.

Confidence in the sector – accounting for some 7 per cent of GDP – was hit by “heightened uncertainty” about the UK’s economic outlook, it said.

“Moreover, a number of firms noted reluctance among clients to place orders and commence contracts until after the EU referendum… around one-third of respondents have seen a detrimental impact on their business from uncertainty regarding the forthcoming vote,” the report added.

Markit/Cips’ construction purchasing managers’ index (PMI) showed a reading of 51.2 last month, down from 52 in April. Any result above 50 denotes expansion.

Residential and commercial construction, as well as civil engineering, were “all stuck in a low gear” during May, the report noted.

Tim Moore, senior economist at Markit and author of the survey report, said: “Survey respondents noted that the forthcoming EU referendum has disrupted new order flows and the timing of client decision-making in particular.”

David Noble, chief executive at the Chartered Institute of Procurement & Supply (Cips), said the industry appeared to have “taken residence in a waiting room of non-activity” against the backcloth of poor global economic conditions and referendum jitters.

The data came after separate PMI data on Wednesday showed that the manufacturing sector eked out modest growth in May after a shock contraction in April, but remained close to stagnation as Britain’s EU referendum also cast a shadow over that industry.

In its recent final poll before the 23 June vote, employers lobby group the CBI said 85 per cent of its members were in favour of remaining inside the bloc, 15 per cent backed the Leave campaign and 5 per cent were undecided.

Howard Archer, chief UK economist at IHS Global Insight, said: “A vote to leave the EU would likely significantly hit construction activity in the near and medium-term at least, due to weakened economic activity, heightened caution of clients to commit to major projects and a downturn in the housing market.”

One bright spot of the report was that more than half of those surveyed – 51 per cent – expected a rise in construction output over the next year, while only 14 per cent expected a fall. There was also a pick-up in construction staff hiring in May to a four-month high.

But Noble at Cips added: “Once again the industry holds its breath to see what the coming months will bring as housing sector growth in particular remains weak.”