The UK construction numbers
Comments on the UK construction numbers, expert at Markit, Chris Williamson, said:
“A drop in UK construction output in May adds to what’s looking like an ugly run of data for the sector.
“Construction output fell 2.1% in May, according to the Office for National Statistics, which would be an alarming rate decline had the sector not seen a 2.8% increase in April. However, it looks like there’s worse to come; possibly much worse. Markit/CIPS PMI survey data recorded the steepest contraction of construction activity for seven years in June as projects were put on hold in the lead up to the EU referendum. Housing and commercial construction were especially badly affected.
“The drop in activity in May means the sector needs to see a 1.9% expansion of output in June to avoid acting as a drag on economic growth in the second quarter, which therefore seems highly unlikely given the weak survey data. Construction therefore looks likely to have contracted in the second quarter, adding weight to expectations that the overall pace of economic growth will have slowed in the second quarter from the 0.4% expansion seen in the first quarter. PMI data point to just a 0.2% rise in second quarter GDP.
“Going forward, prospects look worse, for the short term at least. The drop in activity seen in the June construction PMI was fueled by uncertainty about the mere possibility off ‘Brexit’. The reality of the UK leaving the EU and the associated heightened uncertainty, especially in relation to commercial property and housing investment, is therefore likely to cause further stress in coming months.
“More information on the health of the economy in the immediate aftermath of the referendum will be provided by an early ‘flash’ PMI reading for July, to be released by IHS Markit on 22 July. Any sharp downturn in the pace of economic growth and hiring signalled by the July PMIs will set the scene for the Bank of England to cut interest rates at its August Monetary Policy Committee Meeting, and possibly raise the prospect further non-standard measures, such as additional quantitative easing or an extension of its Funding for Lending Scheme.”