Activity in the UK construction sector was the weakest for three months, due to a slowdown in commercial work, according to a survey of executives working in the building trade published this week.
The IHS Markit construction index fell to 52.8 in December, down from 53.4 in November and slightly below a consensus forecast among economists of a reading of 52.9. Demand for commercial building work, which includes shops and office blocks, is particularly closely linked to uncertainty and the slowdown in new orders suggests that Brexit may be chilling business investment.
“Subdued domestic economic conditions and an intense headwind from political uncertainty resulted in the weakest upturn in commercial work for seven months,” said Tim Moore, economics associate director at IHS Markit. The construction survey follows a similar poll for manufacturing businesses, released,which suggested that stockpiling of components and finished goods ahead of Brexit was helping to support activity in Britain’s factories.
Together the two surveys show how the political turmoil in Westminster over whether to pass the withdrawal deal is already having an effect on British business. “A number of construction companies noted that heightened political uncertainty had encouraged delays to spending decisions among clients, especially in relation to commercial development projects,” Markit wrote in its report on the figures. However, business optimism picked up to the highest level since April despite the slowdown in overall activity.
Builders said this was due to a boost from “big-ticket transport and energy infrastructure projects in 2019”. New work on civil engineering projects, which includes infrastructure work such as on Crossrail and the Thames Tideway tunnel, picked up to the highest pace for more than one-and-a-half years, suggesting that government investment may help to support builders even as business investment slows.
Construction companies often refer to the three H’s of Britain’s infrastructure pipeline: the HS2 high speed rail line, the Hinkley Point nuclear power plant and the third Heathrow runway, which have now all been approved by parliament. “The construction sector has had little to cheer recently, but 2019 should be a better year,” said Samuel Tombs, chief UK economist at Pantheon Macroeconomics.
“A 10.4 per cent year-over-year jump in public sector gross investment in 2019-20 is set to boost the sector,” he said, adding that if a “no-deal Brexit” can be averted business investment could pick up.