This article is more than 1 year old

This article is more than 1 year old

Britain’s building industry was hit by the biggest fall in new work in more than a decade last month as Brexit uncertainty gripped construction firms before the deadline on 31 October.

New orders contracted for a fifth month in August with commercial construction, which includes offices and shops, leading the decline as competition for work intensified and property developers delayed decision-making.

The measure of new orders on the IHS Markit/Cips UK construction PMI survey slumped from 44.6 in July to 40, the lowest since March 2009 when the UK economy was in recession after the financial crash. Any reading below 50 signals contraction.

Q&A What are PMIs? Show Hide The purchasing managers' indices, or PMIs, track services sector companies, manufacturers and building firms around the world. They measure activity, output, business confidence and hiring levels, to produce a health check on how these sectors are performing. PMIs are compiled each month from interviews with 'purchasing managers' at thousands of companies. They produce a single headline figure – anything above 50 indicates a sector is growing, while a figure below 50 shows a contraction. Economists watch these surveys closely as they look ahead to coming months, while the official data, such as gross domestic product and retail sales, tends to be more backward-looking.

The headline index, which measures total activity in the sector, showed construction fell for a fourth consecutive month, again led by office building and general maintenance. It fell to 45 in August, down from 45.3 in July and well below the 48.4 expected by City analysts.

The level of new work has declined since April in line with official figures, which last month showed the sector contracted in the second quarter of the year.

Building lobby groups warned that further declines over the coming months were likely to put many smaller firms out of business.

The Federation of Master Builders said its members were already struggling to absorb higher costs “in an industry notorious for tight margins”.

Its chief executive, Brian Berry, said: “If we want local builders to deliver the high-quality homes our country needs, to upgrade people’s homes to modern standards and to form the supply chain for key national infrastructure projects that are essential to helping our economy move forward, then we certainly can’t afford for building companies to go to the wall due to uncertainty.”

In spite of the contraction and weak outlook, firms hung on to staff and maintained recruitment plans. The survey reported evidence of a widespread shortage of workers since the Brexit vote that prevented employers from making staff redundant.

Analysts said a Brexit deal was unlikely to revive the industry before the end of the year after a dive in confidence in construction industry boardrooms.

An IHS Markit economist, Tim Moore, said: “Construction companies noted that rising risk aversion and tighter budget-setting by clients in response to Brexit uncertainty had held back activity, particularly in the commercial sub-sector.

“Commercial construction activity fell at a steep and accelerated pace during August, which more than offset the softer rates of decline in house building and civil engineering work.”

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Construction companies indicated a slide in business optimism to the lowest level since December 2008. The report said: “Concerns about the business outlook were overwhelmingly attributed to domestic political uncertainty and a corresponding drop in client spending.”

Likening the industry to an oil supertanker, Duncan Brock, a spokesman for the Chartered Institute of Procurement and Supply (Cips), said a turnaround would not come until 2020, even if the Brexit conflict could be resolved amicably.

“The reality is, if a revival of confidence and a flood of new orders return to the construction sector in the coming weeks, much like a large tanker turning in a dock, there is little room for the sector to improve in the last quarter of the year. It’s likely September’s data will be even more discouraging,” he said.

Brock added: “As Brexit creeps closer and confusion still reigns, this will undoubtedly heap more pressure on the UK government to create much-needed clarity in the market. The commercial sector particularly has been devastated by reluctant clients fearful of taking a wrong turn in a confusing landscape and delaying project starts, resulting in the fastest drop in new orders since March 2009.”

The construction managers’ survey followed a snapshot earlier this week of the manufacturing industry, which found that firms were cutting back on output amid falling orders at home and abroad.

The IHS Markit CIPS survey of the manufacturing sector found that EU-based customers were shunning British manufacturers and rerouting supply chains away from the UK as the likelihood of border disruption after 31 October increased.

Orders from the US and Asia also fell, pushing down the sector’s PMI to 47.4 in August, down from 48 a month earlier.