Growth slows to one-year low with analysts as Brexit delays investment plans and saps demand for new office space

This article is more than 3 years old

This article is more than 3 years old

Britain’s construction industry is taking on fewer workers amid a slowdown in commercial work, as economic uncertainty puts projects on hold.

Growth in the construction sector fell unexpectedly to a one-year low in August, the closely watched Markit/Cips purchasing managers’ index for the industry showed on Monday.

The gauge of economic activity fell to 51.1 last month from 51.9 in July, pointing to marginal expansion. fifty indicates stagnation, while anything below signals contraction.

The figures show the construction sector “flirting with another recession”, according to Samuel Tombs, chief UK economist with Pantheon Macroeconomics consultancy. There could be a worse outlook if limited progress in the Brexit talks forced large firms to consider relocating activities to Europe. Numerous banks from HSBC to Goldman Sachs have suggested they could move staff.

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“If, as we expect, Brexit negotiations continue to progress slowly, more firms will activate Brexit contingency plans, freeing up office space and sapping demand for new commercial projects,” Tombs said.

Only robust housebuilding activity kept the industry growing in August, as civil engineering work was close to stagnation and commercial building dropped at the fastest pace since July 2016. The subdued demand was linked to a lack of new work following completed projects, as heightened economic uncertainty puts projects on hold. That has led employment numbers to rise at the slowest pace since July 2016.

Duncan Brock of Cips (the Chartered Institute of Procurement and Supply), which helps to compile the survey, said: “Reduced government spending, economic uncertainty and Brexit-delayed decision-making among clients were largely to blame.”

The poor results suggest the construction sector will contribute little, if anything, to GDP in the three months to the end of September. Firms are also bracing for the soft patch to continue into the autumn, according to the survey, as fragile confidence among firms contributes to weaker trends for job creation.

The figures come after a recent slide in the value of sterling, adding pressure to the costs of UK consumers and weakening the purchasing power of businesses reliant on products from abroad. That could push inflation higher, raising pressure on the Bank of England to consider tackling the climb through the use of higher interest rates.

The weak survey also comes after the Office for National Statistics pointed to house prices moderating since the middle of last year following the Brexit vote, especially in London. The overall UK annual increase is about 5% in the first half of the year.

However, there is support for house prices from low levels of unemployment – at the lowest point since the mid 1970s – and from rockbottom interest rates keeping mortgage costs low.

The construction data also failed to mimic a more buoyant outlook for Britain’s manufacturing sector, which showed the potential for robust production over the coming months.

Joshua Mahony, market analyst at trading firm IG, said: “Unfortunately, given the current trajectory, it seems like a strong possibility that we could see the construction sector move back into contraction in the coming months.”