Commercial projects weakness holds back construction sector but residential building continues to shine bright

Jasper Jolly
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Firms are wary of committing to large projects, the survey shows (Source: Getty)

A dwindling load of commercial projects held back the UK construction sector at the end of 2017 despite strength in residential building, according to a closely followed survey published today.

The construction purchasing managers’ index (PMI) fell from 53.1 in November to 52.2 in December, according to data company IHS Markit.

The reading, which remained well above the 50 level indicating growth overall in the sector, nevertheless added to new-year concerns over the prospects for the British economy.

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Sterling fell against the US dollar following the release, hitting a low of $1.3560, and breaking a run of good form which had seen the pound hit its highest point against the greenback since September.

Commercial activity fell for the sixth month in a row. Duncan Brock, director of customer relationships at the Chartered Institute of Procurement and Supply, which participated in running the survey, blamed the fall in commercial activity on political uncertainty.

He said the below-expectations rise in commercial building activity was “testament to Brexit-related uncertainty on the horizon and the sector’s fear about the direction of the UK economy, as clients still hesitated to spend on bigger projects.”

Read more: Construction firms facing growing delays for payments

House building remained “a key engine of growth” for the sector, IHS Markit said.

Meanwhile, the rise in the new orders index to 53.1, from 52.9 in November, suggests that activity might edge up in the first quarter, according to Samuel Tombs, chief UK economist at Pantheon Macroeconomics.

Yet the outlook for this year remains weak, he said, adding: “The construction sector ended 2017 on a weak note, and it likely will continue to struggle in 2018."

Construction output was 2.5 per cent below its third-quarter average in October, making further declines in official data likely, Tombs said.

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