UK construction PMI unexpectedly tumbles to 14-month low

Construction cranes are seen in London, Britain, October 2, 2017. [Photo/Agencies]

LONDON - British construction companies reported the sharpest fall in activity since just after June 2016's Brexit vote, as new work dried up last month on concern over the economic outlook, a survey of the sector showed on Tuesday.

The IHS Markit/CIPS construction purchasing managers’ index (PMI) sank to 48.1 in September from August’s reading of 51.1, far below all forecasts in a Reuters poll of economists and its lowest since July 2016.

"A shortfall of new work to replace completed projects has started to weigh heavily on the UK construction sector," said Tim Moore, the economist who compiled the survey, adding that the risk of higher interest rates was slowing house-building.

"Aside from the soft patch linked to spending delays around the EU referendum, construction companies have now experienced their longest period of falling workloads since early 2013," he said.

Monday's manufacturing PMI showed slowing - but still solid - growth. A survey of services companies due on Wednesday will give a clearer idea of third-quarter growth.

Britain's economy has suffered its weakest growth so far this year since 2012, with consumers bearing the brunt of a rise in inflation largely caused by the pound's tumble after the June 2016 Brexit vote.

Construction, which makes up 6 percent of the economy, has also been suffering. Output fell 0.5 percent quarter-on-quarter in the three months to June, according to official data released last week.

The PMI figures had previously been more upbeat than the official numbers, but now seem to be falling into line.

New orders have contracted for three months in a row and optimism is its lowest since July 2016, when business morale plummeted across a range of surveys, prompting the Bank of England to begin emergency stimulus the following month.

Now, the BoE appears poised to reverse some of this. Earlier this month, the central bank said most of its policymakers expected to raise interest rates in the coming months, if growth and inflation pressures develop as they expect.

The PMI data showed the cost of building supplies rose at its fastest rate in seven months in September.

Civil engineering joined commercial projects as the weakest performing construction sectors.

"Fragile client confidence" and "heightened economic and political uncertainty" weighed on new projects, and the prospect of higher interest rates was one factor behind slowing house-building, Markit said.

Britain's ruling Conservative Party announced plans to revive a housing-subsidy programme on Sunday, before its annual conference, but businesses remained critical about the lack of progress in Brexit talks with the EU.