UK construction shrinks at fastest pace in seven years after Brexit vote: PMI

[LONDON] Britain's construction industry suffered its sharpest downturn in seven years last month, according to another business survey on Tuesday which suggests the economy is at risk of recession after June's Brexit vote.

The Markit/CIPS UK Construction Purchasing Managers' Index (PMI) inched down to 45.9 in July from 46.0 in June - the lowest reading since June 2009 and some way below the 50 mark that divides growth from contraction.

While better than all forecasts in a Reuters poll of economists that pointed to a reading of 43.8, the PMI - collated entirely after the June 23 referendum - showed commercial construction dwindled and confidence flagged.

There was a similarly downbeat report from manufacturers on Monday, contributing to growing evidence that business and consumer confidence took a hefty knock after Britons voted to leave the European Union.

Overall there was little in the construction PMI to challenge expectations that the Bank of England will cut interest rates on Thursday to a new record low and possibly revive its bond buying programme.

"UK construction firms frequently cited ongoing economic uncertainty as having a material negative impact on their order books," said Tim Moore, senior economist at survey compiler Markit, though he added the deterioration from June was small.

The PMI for the far larger services sector, due on Wednesday, will offer a much clearer steer on how Britain's economy has fared since the Brexit vote.

Mr Moore said clients of construction companies had adopted a 'wait-and-see' approach to projects, rather than cancelling them outright or reducing their scope.

The downbeat mood of the PMI contrasts with reports from some major British construction companies, with Kier Group plc and housebuilder Taylor Wimpey reporting little impact so far.

The survey of 170 construction companies showed firms cut staffing at the fastest rate since November 2012, with this component of the index falling to 49.3 from 52.5 in June.

Commercial work, which accounts for almost a third of total new construction work, contracted at the fastest rate since December 2009.

Last month the Bank of England said it expected "sizeable falls" in commercial real estate prices in the near term and a number of funds investing in the sector temporarily stopped investors withdrawing funds.

Housebuilding declined for a second month, albeit at a slightly slower pace than in June.

Prices paid for raw goods and materials for both construction and manufacturing increased at the sharpest pace since March 2015, which Mr Moore linked to sterling's depreciation since the referendum.

The pound has recovered some ground since a dramatic 14 per cent fall against the dollar after the vote, but hit a three-week low against the euro after the disappointing manufacturing PMI on Monday.

REUTERS