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Construction sector growth slows amid 'clouds of uncertainty' ahead of EU vote

Published 04/05/2016

Growth in the construction sector has slowed
Growth in the construction sector has slowed

Growth in the UK's construction sector slowed to its lowest level for almost three years in April amid "clouds of uncertainty" ahead of the EU referendum.

The closely-watched Markit/CIPS construction purchasing managers' index (PMI) showed a reading of 52 last month, down from 54.2 in March and the weakest since June 2013. A reading above 50 indicates expansion.

It comes after PMI data on Tuesday showed a surprise contraction in manufacturing activity last month and adds to evidence that the EU referendum is taking its toll on the UK economy.

Official figures last week revealed Britain's economic growth slowed to 0.4% in the first quarter from 0.6% in the previous three months and economists are now expecting output to ease back further in the second quarter.

Tim Moore, senior economist at Markit and author of the Markit/CIPS Construction PMI, said: "UK construction firms reported their worst month for almost three years in April, meaning that the first quarter slowdown is unlikely to prove temporary."

"Softer growth forecasts for the UK economy alongside uncertainty ahead of the EU referendum appear to have provided reasons for clients to delay major spending decisions until the fog has lifted," he added.

David Noble, group chief executive at the Chartered Institute of Procurement & Supply (CIPS), said " clouds of uncertainty" had dealt a blow to confidence in the construction sector.

The survey showed h ouse building picked up slightly after a dire March, but saw one of the weakest rises in activity since early 2013.

The report also revealed a renewed drop in confidence in the sector, with the weakest positive sentiment over the outlook for nearly three years.

Construction firms reported a " general unwillingness to commit to new projects" among clients, according to the survey.

Builders are also taking on more sub-contractors rather than hiring staff to "tide them over until the outlook becomes clearer", Mr Noble said.

Howard Archer, economist at IHS Global Insight, said the construction PMI "adds to the rapidly mounting evidence that the UK economy is stalling as heightened uncertainty ahead of June's referendum on EU membership takes an increasing toll".

He predicts UK growth will slow further, to 0.3% in the second quarter, or even 0.2% if the services sector also begins to suffer.

Thursday's services PMI survey will be watched closely for signs of weakness in the most dominant sector of the economy.

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