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UK construction industry shrugs off post-Brexit vote slump: PMI

Tuesday, October 4, 2016 - 18:02

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Britain's construction industry unexpectedly returned to growth in September, according to a survey that will add to doubts whether the Bank of England will ready more stimulus to offset the hit of June's Brexit vote.

[LONDON] Britain's construction industry unexpectedly returned to growth in September, according to a survey that will add to doubts whether the Bank of England will ready more stimulus to offset the hit of June's Brexit vote.

The Markit/CIPS UK Construction Purchasing Managers' Index (PMI) rose to 52.3 from 49.2 in August, beating all forecasts in a Reuters poll and rising above the 50 mark that divides growth from contraction for the first time since May.

Housebuilding recovered and new orders picked up, pushing the headline index to a six-month high, although it was still well below the average over the last three years of around 60.

Economists polled by Reuters had predicted the PMI would fall to 49.0.

The construction industry's surprise bounce back follows Monday's strong manufacturing PMI, adding to signs the economy has fared better than policymakers had feared since the June 23 vote to leave the European Union.

"Construction firms appear reasonably optimistic about the near-term outlook, with confidence linked to the fastest rise in new orders since March," said Tim Moore, economist at survey compiler IHS Markit.

"However, the sector remains on a much weaker growth trajectory than seen at the start of 2016," Mr Moore said, citing subdued investment and accelerating prices paid by construction firms for raw materials due to the weak pound.

Residential and civil engineering activity expanded in September but commercial construction shrank for a fourth month, marking its longest decline since early 2013.

The government on Monday announced measures to boost the construction industry, which accounts for 6 per cent of the economy, by launching a 5 billion pound (S$8.81 billion) homebuilding stimulus package including 2 billion pounds of government borrowing to help build 40,000 houses by 2020.

The housing market had shown signs of a slowdown, with the Bank of England last week saying lenders approved the fewest mortgages in nearly two years in August.

But the PMI suggested optimism among construction firms hit a four-month high, while employment in the sector rose for the first time since April, the PMI survey showed.

The PMI for the services sector, accounting for around 80 per cent of Britain's private sector economy, is due on Wednesday.

REUTERS

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