June data signalled a return to falling output levels across the UK construction sector, led by a steep decline in residential building and a reduction in commercial work for the first time since May 2013.
Reports from survey respondents widely linked the downturn in business activity to uncertainty ahead of the EU referendum (just over 80% of survey responses were received before June 24).
Heightened uncertainty also contributed to a further reduction in new invitations to tender, with the latest data pointing to the sharpest drop in new business volumes since December 2012. Meanwhile, softer demand conditions acted as a brake on staff recruitment in June and contributed to a drop in purchasing activity for the first time in just over three years.
Residential construction was the worst performing sub-category of activity, with activity falling at the fastest pace since December 2012. Civil engineering activity remained broadly stable in June, while commercial building work saw a sharp loss of momentum and posted one of its weakest readings for six-and-a-half years.
Tim Moore, Senior Economist at Markit and author of the Markit/CIPS Construction PMI, said: “Widespread delays to investment decisions and housing market jitters saw the UK construction sector experience its worst month for seven years in June.
"Construction firms are at the sharp end of domestic economic uncertainty and jolts to invest or sentiment, so trading conditions were always going to be challenging in the run-up to the EU referendum. However, the extent and speed of the downturn in the face of political and economic uncertainty is a clear warning flag for the wider post-Brexit economic outlook.
"Housebuilding activity was worst affected by the uncertain business climate in June, very closely followed by commercial work. Civil engineering was the only stabilising influence, which underlines the need to shore up decision making on infrastructure projects and help offset any further loss of momentum across the wider construction sector.
“The vast majority of June’s survey responses were received ahead of the EU referendum, so the worry is that the ensuing political turmoil will hit construction spending decisions for some timeto come. As a result, the latest figures raise the likelihood that the Bank of England will inject additional stimulus this summer in an attempt to dampen the short-term impact of Brexit uncertainty on the real economy.”
Professor Noble Francis, Economics Director at the Construction Products Association, commented: “This was a very sharp fall in the Markit/CIPS for construction activity in June overall and particularly in private housing and commercial, two of the largest sectors.
“In terms of what we have seen within the industry, commercial activity in central London still continues apace and there is also still a lot of activity in cities like Birmingham and Manchester. The uncertainty prior to the referendum, however, has had an impact on new contracts signed, especially for smaller projects.
“In terms of housing, private house building continues but we are seeing evidence that this same uncertainty has had an impact on new housing starts.
"Infrastructure activity was broadly flat, which is not surprising as it has a longer lead in time, so the majority of work occurring in this sector is on large projects based upon contracts signed in 2014 and 2015.
“Our own surveys in the months before the vote showed that uncertainty around the event was dampening business confidence and investment across the industry. Though today’s PMI figures were largely generated before 23 June, it will serve to highlight the impact of uncertainty on UK construction whilst government formulates a plan ahead.”
