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Construction downturn eases as Brexit effect wears off

Construction downturn eases as Brexit effect wears off

The shock impact of Brexit on the UK construction sector appears to be wearing off, according to a new survey.

In the first monthly survey after the referendum, the Purchasing Managers Index (PMI) survey produced by Markit and the Chartered Institute for Purchasing and Supply showed a major contraction in activity, with the July reading of 45.9 being the worst in 85 months.

That figure had come on the back of a slowdown linked to pre-vote uncertainty, but the August reading of 49.2 suggests the impact may be wearing off. Although this figure is still the wrong side of the 50 mark that delineates between contraction and growth, the improvement suggests that growth may soon resume.

Overall, housebuilding and commercial construction were still in negative territory, although civil engineering has levelled out. Business confidence was up from the 39-month low recorded in July, although it remained among the lowest monthly levels of the past three years.

The relative improvement may owe much to the establishment of a new government with departmental appointments designed to address the challenges of Brexit, along with the signal that article 50 will not be invoked until the new year. This may buy more time to form a coherent strategy for Britain's economic future and thus offer a better chance of stability. It also pushes back the time when Britain will no longer be an EU member.

However, some issues remain, not least the lower pound, which means construction firms face cost inflation due to the higher prices of imported materials.

Commenting on the survey, Markit economist Tim Moore said it was "only a partial move towards stabilisation, rather than a return to business as usual across the construction sector", but it "provides hope that the near-term fallout from Brexit uncertainty will prove less severe than feared".

The PMI surveys for manufacturing and services both did very well in August, showing some of the strongest month-on-month improvements in the history of the survey as they both returned to growth, boosting hopes that the much-feared 'Brexit recession' will not take place.

Image: iStock


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