Growth in the construction sector softened to its lowest level in 10 months in January, with experts predicting the industry could slip into recession soon if the UK leaves the EU without a deal.
The purchasing managers’ index (PMI), a measure of business activity and confidence, slipped to 50.6 in January, just above the 50 mark that divides growth from contraction. This is down from 52.8 in December and is the lowest since March 2018, just after the Beast from the East weather front forced builders on construction sites to temporarily down tools.
Jobs increased at the slowest pace since just after the EU referendum, according to the survey by IHS Markit. Potential clients were put off from starting new projects by Brexit uncertainty and related fears about the UK economy, respondents indicated. Firms reported that it took longer to secure a sale with customers, as buyers were more hesitant about spending.
The slowdown in construction growth was felt across the sector, with the pipeline of new work drying up in residential, civil and commercial projects. Residential building performed the best, but still at the slowest rate since last March.
The building of commercial projects fell for the first time in 10 months.
Despite weaker performance in January, building firms on balance stayed optimistic about the outlook for 2019, with 41pc believing output will rise, and 16pc thinking it will drop. Optimists said that large civil projects were a reason to feel positive, whereas pessimists noted Brexit uncertainty. However, they are slightly less positive than they were in December.
Samuel Tombs of Pantheon Macroeconomics said that the performance of the sector hung on what Brexit outcome the UK achieved. “More than in other sectors, the outlook for the construction sector is quite binary, based on the Brexit path chosen by politicians,” he said.
“In the unlikely event of a no-deal Brexit, the sector likely will slide into another recession, amid weaker business confidence and tighter credit conditions. But provided a deal is signed off, the construction sector likely will enjoy strong growth soon.”
The slowdown in construction is also showing in materials suppliers, with analysts at Peel Hunt cutting profit forecasts across the sector by between 5pc and 8pc “to reflect a slower economic outlook”.
More than £5bn was wiped off the sector’s stock market value in the UK last year with shares in all but two of the 15 London-listed builders’ merchants slumping - the majority by more than a fifth.
Big fallers included Travis Perkins, which warned on profits in July following weak trading at its DIY chain Wickes, and ended the year down by a third.
Other fallers included heating and ventilation specialist SIG, which unearthed irregularities in its books last February, and debt-laden asphalt and concrete maker Breedon.
Peel Hunt’s Clyde Lewis said: “Brexit concerns have been weighing on house purchases and property investors have had a view that they want a bit more clarity before they commit to building new offices and industrial parks.”
Several in the sector bounced back this year but market caps are still down by around £3bn compared to the start of last year, which Mr Lewis said was due to the defeat of Theresa May’s withdrawal deal.
