It's official: The UK's construction sector has gone into reverse

Emma Haslett
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Analysts warned steeper declines in the UK's construction sector lie ahead. (Source: Getty)

The UK's construction sector went into reverse in September, a closely-watched indicator suggested today.

IHS Markit's purchasing managers' index fell to 48.1 in September, the first time in over a year it has fallen below the all-important level of 50, below which indicates a contraction.

The figure was well below forecasts of 50.8, which would have suggested some growth, albeit modest, and down from 51.1 in August.

Yesterday the same indicator for the manufacturing sector also disappointed, coming in a full point below expectations.

The analysis showed falls in both commercial and civil engineering activity in September, with civil engineering work falling by the most in four and a half years. Meanwhile, the decline in commercial development was the second-steepest since February 2013. Housebuilding, however, registered an expansion, although the figures showed growth momentum had "eased".

Read more: Now John McDonnell wants to nationalise construction

Sterling edged 0.2 per cent lower against the dollar, to $1.3252, and fell the same amount against the euro, to €1.1290.

"A shortfall of new work to replace completed projects has started to weigh heavily on the UK construction sector," said Tim Moore, associate director at IHS Markit.

"Aside from the soft patch linked to spending delays around the EU referendum, construction companies have now experienced their longest period of falling workloads since early-2013.

“Fragile client confidence and reduced tender opportunities meant that growth expectations across the UK construction sector are also among the weakest for four-and-a-half years. At the same time, cost pressures have intensified, driven by supply bottlenecks and rising prices for imported materials."

"Steeper declines in construction output likely lie ahead, given that official data show that new orders fell by 7.8 per cent quarter-on-quarter in the second quarter, the biggest drop for five years," added Samuel Tombs, chief UK economist at Pantheon Macroeconomics.

"Markit also reported that business optimism fell to its second-lowest level since April 2013, suggesting that the government’s shift to a more accommodating stance in Brexit talks has done little to convince builders that clients will sanction delayed projects soon."

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