Belfast Telegraph

'Soft patch' for builders amid 'fragile business confidence'

Activity in Britain's construction industry unexpectedly slowed to a one-year low in August as new business slumped for the second month in a row.

The closely watched Markit/CIPS UK Construction purchasing managers' index (PMI) showed a reading of 51.1 last month, down from 51.9 in July with economists' expecting 52.

A reading above 50 indicates growth.

The PMI report pointed to a lack of new orders as the trigger for the slowdown, with a healthy performance from housebuilding being countered by the sharpest drop in commercial development since July 2016.

Sterling was marginally down against the US dollar at 1.294 following the update and was 0.5% lower versus the euro at 1.086.

It comes as output at UK factories unexpectedly pushed to a four-month high in August in an encouraging sign for the overall economy following a lacklustre start to the year.

Tim Moore, associate director at IHS Markit, said: "Survey respondents noted that subdued business investment and concerns about the UK economic outlook had led to a lack of new work to replace completed projects, especially in the commercial building sector.

"There were signs that UK construction firms are bracing for the soft patch to continue into this autumn, with fragile business confidence contributing to weaker trends for job creation and input buying during August."

Employment was also suffering in response to the weak orders and activity, with the number of new jobs created weakening to its lowest level since July last year.

However, cost pressures - triggered by higher import prices from the Brexit-hit pound - slid to a near one-year low following "successful negotiations" with suppliers.

Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said the read-out indicates the construction industry is "flirting with another recession".

He said: "Although the PMI still is above the 50 mark that in theory separates expansion from contraction, it is below the 52 reading that has been the tipping point in practice.

"If, as we expect, Brexit negotiations continue to progress slowly, more firms will activate Brexit contingency plans, freeing up office space and sapping demand for new commercial projects."

Some experts are hopeful that the UK economy can churn out stronger growth in the third quarter if the dominant services sector puts in a strong performance.

The Office for National Statistics (ONS) confirmed last month that Britain delivered the slowest growth in the second quarter out of the G7 group of nations, expanding by 0.3% in April to June, up from 0.2% during the first three months of the year.

It came as household spending slumped to its lowest level in nearly three years following a slowdown in new car sales and persistent pressure from higher inflation.

Bank of England official Michael Saunders said on Thursday that a ''modest'' interest rate hike is now needed to curb surging inflation.

Mr Saunders - one of the Bank's Monetary Policy Committee (MPC) members who has recently voted to raise rates - said an increase would ''help ensure a sustainable return of inflation to target over time''.

Howard Archer, chief economic adviser to EY Item Club, said: " Muted economy activity and appreciable economic and political uncertainties threaten to be a highly challenging combination for the construction sector over the coming months.

"Furthermore, despite the improvement in housebuilding activity in August, there is the very real possibility that housebuilding activity could be pressurised by extended lacklustre housing market activity and subdued prices amid weakened consumer fundamentals.

"There is the particular concern that potential clients will be cautious over committing to major projects if economic, political and Brexit uncertainties remain elevated over the coming months."

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