Brexit uncertainty hits construction new orders

Output growth fell to its weakest level of growth for almost three years, with the PMI falling to just 51.2 in May, down from 52.0 in April, leaving construction activity only slightly above the 50.0 ‘no change’ level.

All three sectors saw a slowdown in May, with residential work growing at one of its weakest levels since 2013, while commercial activity growth was the slowest for three years. Civil engineering stagnated yet again in May, making it the worst-performing sector for the second month running.

May’s data also showed the first fall in new orders volumes for the first time since April 2013, with respondents citing a lack of client confidence driven by economic uncertainty and project delays due to the upcoming EU referendum.

The survey showed that one third of businesses had seen a detrimental impact on activity from uncertainty regarding the upcoming vote.

However, 55 per cent of construction firms said that uncertainty around the vote was having ‘no sigificant effect’ on their business.

Only 16 per cent of firms said that costs were being adversely affected by the EU referendum uncertainty, but one in four (26 per cent) of firms said they had seen a detrimental impact on profits.

Despite economic uncertainty and a fall in activity, most firms remained upbeat about construction’s prospects, with 51 per cent of respondents expecting a rise in output over the next 12 months, while only 17 per cent expected actvity to fall.

Job creation also picked up to reach a four-month high in May, marking three years of continuous job creation.

Tim Moore, senior economist at Markit, said that levels of job creation could come under pressure if workloads fail to pick up in 2016.

“The main positive aspect was a pick up in staff hiring to its fastest since the beginning of the year,” he said.

”Positive employment trends not only contrasted with falling new order volume in May, but the gap between these indices was the largest since the survey began in 1997.

“An optimistic interpretation is that construction firms are looking through the second quarter weakness and feel that workloads will recover momentum.

“However, should this fail to materialise later in 2016, then job creation is likely to come under pressure given its elevated trend relative to current demand patterns.”

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BDC 305 Jun 2023