Britain’s construction firms have recorded their first decline in orders in three years as output slowed further in the run-up to the EU referendum.
The purchasing managers’ index for the construction industry from Markit and Cips fell from 52 in April to 51.2 in May, its lowest level since June 2013. A reading above 50 signals expansion. A majority of firms reported falling orders for the first time since April 2013 while output growth slowed to its weakest rate in almost three years.
A number of firms said clients were reluctant to place orders and start contracts until after the referendum on 23 June. A third of respondents said their business had been adversely affected by uncertainty surrounding the vote, which is likely to be tight.
Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said: “The construction sector is in the doldrums, confirming that the recovery is faring badly under the strain of Brexit risk.“But even 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 shows that public sector construction is being squeezed, while the revival in housebuilding has run into skilled labour shortages.”
All three areas of construction reported much weaker output growth than at the start of the year. Housebuilding and commercial construction both grew at the weakest rates in about three years. Civil engineering ground to a halt in May and was the worst-performing area for the second month running.
Construction companies were relatively upbeat about the growth outlook, although confidence levels were among the lowest seen over the past three years. More than half surveyed expecting to increase their output over the next 12 months, and only 14% anticipating a fall. As a result, hiring picked up and reached a four-month high, marking three years of continuous job creation.
Howard Archer, chief UK and European economist at IHS Global Insight, said: “The government will be particularly disappointed to see housebuilding growth could only edge up for a third month running in May and is around its lowest levels since early 2013, given that it is looking to address the UK’s acute housing shortage.”
A vote to leave would hit the construction sector hard, housebuilders have said, exacerbating skill shortages if the flow of migrant workers into Britain dries up.
Two-thirds of the construction sector supports continued EU membership, with more than half saying Brexit would lead to less foreign investment and drive up labour and material costs, according to a survey by Building magazine.
