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Brexit concerns lead to slowdown in construction industry

Published 02/06/2016

Growth in the UK's construction industry was its weakest for almost three years in May
Growth in the UK's construction industry was its weakest for almost three years in May

Growth in the UK's construction industry was its weakest for almost three years in May amid "heightened uncertainty" over the EU referendum.

The closely-watched Markit/CIPS construction purchasing managers' index (PMI) showed a reading of 51.2 last month, down from 52 in April. A reading above 50 indicates expansion.

The report revealed that incoming new work had also slipped back for the first time since April 2013.

It comes after PMI data on Wednesday showed the manufacturing sector eked out modest growth in May after a shock contraction in April, but remained close to stagnation as Brexit fears hit activity.

Tim Moore, senior Markit economist, said construction companies were facing a "challenging" second quarter, hampered by "growth headwinds" across the sector.

He added: "May data signalled the worst month for commercial building since June 2013, while residential work and civil engineering activity both saw a renewed loss of momentum.

"Survey respondents noted that the forthcoming EU referendum has disrupted new order flows and the timing of client decision making in particular.

"Heightened uncertainty and subdued general economic conditions in turn contributed to the first outright fall in new work received by construction firms for just over three years."

David Noble, group chief executive of the Chartered Institute of Procurement and Supply, said the industry was taking "residence in a waiting room of non-activity, as continuing poor global economic conditions and uncertainty around the EU referendum impacted growth and new orders".

But the report found construction firms were upbeat about the outlook for the sector, with 51% expecting output to rise over the next year.

It said the optimistic view from companies had helped drive job creation to a four-month high in May.

Samuel Tombs, chief UK economist at Pantehon Macroeconomics, said the construction sector was "in the doldrums" and struggling to recover "under the strain of Brexit risk".

He said: " Around one-third of construction firms reported that they had seen a detrimental impact on their business from uncertainty about the outcome of the referendum, with the rest reporting no significant effects."

He added: "E ven after a 'Bremain' vote, we doubt that the recovery in the construction sector will race away. The sector's slowdown has reflected more than just Brexit risk.

"The official data clearly show that public sector construction is being squeezed, while the revival in housebuilding has run into skilled labour shortages."

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