Builders see sharpest drop in new orders since 2009

LONDON: Britain’s builders have suffered the sharpest fall in new orders since the financial crisis as the construction sector downturn deepens, according to a survey.

The closely-watched Markit/CIPS UK Construction purchasing managers’ index (PMI) revealed that new orders last month tumbled at their fastest pace since March 2009. The overall construction sector shrank further in August and for the fourth month in a row, with the data recording a worse-than-expected reading of 45, down from 45.3 in July.

A reading above 50 indicates growth, below represents contraction. The report also showed that business confidence in the construction sector slumped sharply since July, to its lowest level since December 2008. Housebuilding, commercial construction and major civil engineering firms all remained under pressure in August as Brexit uncertainty has led to projects being delayed.

Duncan Brock, group director at the Chartered Institute of Procurement & Supply (CIPS), said: “The sector fell deeper into contraction as continuing uncertainty and a weakened UK economy took a sizeable bite out of this month’s construction activity. Inevitably business confidence followed suit, dropping like a brick to its worst since December 2008 and close to the lowest depth seen in the previous recession.”

Tim Moore, economics associate director at IHS Markit, which compiles the survey, also warned that the falling confidence levels indicated fears that there will be no immediate bounce-back. He added: “This provides an early signal that UK construction companies are braced for a protracted slowdown as a lack of new work to replace completed contracts begins to bite over the next 12 months.”

The construction figures follow dismal PMI data for the manufacturing sector on Monday, which showed that output tumbled at the fastest rate in seven years in August. Economists will be closely watching Wednesday’s PMI reading for the services sector - which accounts for more than three-quarters of UK output. But there were some bright spots in the construction data, with new jobs remaining fairly steady, while house-building activity fell only slightly and was the least marked since the downturn began in May.

Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said there was hope of a rapid rebound if a Brexit deal can be struck. He said: “The construction sector ... could revive quickly if the risk of a no-deal Brexit subsided; commercial clients are putting off projects due to Brexit tail risk, not insufficient funds. In addition, new work in the housing sector should start to pick up again, given that new mortgage rates have fallen over the last six months, fostering demand.”