Construction industry holds out for rebound after new orders crumble - latest PMI

Britain’s construction sector suffered a sharp decline last month as political uncertainty and subdued demand hit home.

The latest construction report highlighted a sharp reduction in output for December. Picture: Contributed

The closely-watched Markit/Cips construction purchasing managers’ index (PMI) reported its eighth consecutive month of decline in the sector, which accounts for about a tenth of the economy.

The headline reading for December came in at 44.4, down from 45.3 in November. Any reading below 50 denotes contraction.

The figure was shy of economists’ forecasts, which hovered around a reading of 45.6 for the month.

On Thursday, it emerged that output in the UK’s manufacturing sector had shrunk at its fastest pace in almost seven-and-a-half years last month as businesses continued to feel the fallout from recent political and economy uncertainty.

A similar PMI shapshot of Britain’s crucial services sector – three-quarters of the economy – is due to be published on Monday.

The latest construction report highlighted a “sharp reduction” in output for December, which saw the sharpest decline in civil engineering activity for more than a decade.

Tim Moore, economics associate director at IHS Markit, said: “December data suggested that the UK construction sector limped through the final quarter of 2019, with output falling in all three major categories of work.

“Brexit uncertainty and spending delays ahead of the general election were once again the most commonly cited factors highlighted by firms experiencing a drop in construction activity.”

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Gareth Belsham, director of the property consultancy and surveying firm Naismiths, said: “December’s PMI survey revealed an industry still largely flat on its back. The fall in activity has yet to bottom out; eight straight months in negative territory is an unwanted honour not seen since the dark days of a decade ago.

“Yet for all that, December could still prove a turning point. The clear election result, and the prospect of an end to Britain’s Brexit deadlock, could unblock months and even years of repressed demand.

“Investor confidence is still brittle, so few expect the floodgates to open suddenly in 2020. While construction is an industry well used to peaks and troughs, the key question is how well it might respond if demand returns to more normal levels in the coming months.”

Howard Archer, chief economic advisor to the EY Item Club, added: “New orders contracted for the ninth month running. This is the longest run of falling orders since 2012-13.

“Confidence was reported to be subdued with a reluctance by some companies to commit to new projects, particularly in response to political and Brexit uncertainties. The commercial sector was particularly hard hit. There is a real possibility that the economy stagnated in the fourth quarter.”