UK construction shrinks again as Brexit sees new work dry up

[LONDON] The contraction in the UK construction industry gathered pace in August as increased political uncertainty saw new orders fall at fastest pace in more than ten years.

The sector shrank for a fourth-straight month as business optimism slipped to the lowest since the depths of the financial crisis in 2008, according to IHS Markit. The figures follow similarly disappointing readings for manufacturing, increasing fears that the UK could be on course for a recession.

"Construction companies noted that rising risk aversion and tighter budget setting by clients in response to Brexit uncertainty had held back activity," said Tim Moore, economics associate director at IHS Markit. Firms "are braced for a protracted slowdown as a lack of new work to replace completed contracts begins to bite over the next 12 months."

Fears over a no deal Brexit are increasing as the UK heads for its Oct. 31 deadline for leaving the European Union with Prime Minister Boris Johnson indicating he is committed to departing on that date, with or without a deal. Concerns were heightened last week as Johnson tried to outflank opponents by asking the Queen to suspend parliament for a month from Sept. 12.

The uncertainty is already taking its toll. Markit's activity index for the construction industry stood at 45 last month, down from 45.3 in July and well below economist forecasts. The measure has been below the 50 level that indicates expansion since May.

A report on Monday showed the UK's manufacturing sector is in its worst downturn since 2012, while Markit will release a similar gauge for the dominant services industry on Wednesday. Official data showed the UK economy contracted 0.2 per cent in the second quarter, although most analysts predict a bounce back in the three months through September.

BLOOMBERG