UK construction sector unexpectedly shrinks despite avoiding lockdown restrictions

Tom Belger
·Finance and policy reporter
·3 min read
A flock of birds fly in front of a construction crane at dusk in London, Britain, January 5, 2017. REUTERS/Toby Melville     TPX IMAGES OF THE DAY
A flock of birds fly in front of a construction crane at dusk in London, Britain, January 5, 2017. REUTERS/Toby Melville TPX IMAGES OF THE DAY

UK construction firms saw activity decline in January as lockdown restrictions hobbled the economy, despite the sector itself continuing to trade.

Analysts had expected firms to continue to record growth, albeit at a slower pace than December. But a leading industry survey shows a narrow majority of firms saw work decline, abruptly halting seven months of growth fuelled partly by a property market boom.

The purchasing managers’ index (PMI) poll is turned into headline readings on performance, with figures above 50 showing most firms report growth and below showing decline.

The final figure came in at 49.2 in January, down from last month’s reading of 54.6.

It comes in spite of building sites being allowed to remain open during the UK’s latest nationwide lockdown.

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“Construction firms have continued to trade largely as normal through the lockdown,” said Samuel Tombs, chief UK economist at Pantheon Macroeconomics shortly before the latest data was published.

But he noted separate official surveys had pointed to a “slight dip” in turnover in early January.

The figures suggest spillover effects from restrictions’ toll on other sectors.

Building firms surveyed highlighted "greater hesitancy" among clients amid uncertainty over the economic outlook. Housebuilding work continued to grow but at its slowest pace since June, while commercial and civil engineering work dried up.

Employment numbers fell, and firms also struggled with delays linked to Britain's ports, as well as rising steel, plaster and timber prices. Raw material costs rose at their fastest pace in more than two years.

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"Clients hesitated to commit to new workflows because of concerns around the vitality of the UK economy which in turn brought cautious job hiring and obliterated the gains made in employment numbers in December,” said Duncan Brock, group director at the Chartered Institute of Procurement & Supply (CIPS), which compiles the survey with IHS Markit.

It comes after PMI data on Wednesday for Britain’s dominant services sector, which stretches from consultancy to estate agents, had shown the sharpest dip in activity among companies in eight months.

Manufacturing PMI earlier in the week had shown expansion, but at its weakest pace in three months. Supplier lead times were the longest in almost three decades since the poll began.

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Shortages and delays pushed up raw material prices for factories as well, hitting a four-year high. Manufacturers passed on costs, with their own prices at the highest in more than two years.

Construction data for the eurozone was also published on Thursday. It showed builders on the continent facing a greater deterioration in trade than their British counterparts, with a reading of 44.1 in the sharpest decline since last May.

Meanwhile housebuilder Barratt reported rising first-half profits amid strong demand for homes and reintroduced dividends, despite a looming stamp duty deadline which many expect to cool the property market.

A report by the London Assembly’s transport committee was also published on Thursday on Europe’s biggest infrastructure project, the east-west Crossrail line across the capital.

It called for the mayor of London to ensure the project, which has seen delays and rising costs, is up-and-running as soon as possible and not cost taxpayers any more money.

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