UK construction industry stagnates in January due to house building slump, finds latest survey

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The UK’s building industry fell into stagnation in January on the back of a slump in house building, according to the latest survey snapshot of the sector.

The Purchasing Managers’ Index (PMI) for construction came in at 50.2 in the month, down from 52.2 previously and just barely above the 50 mark that separates growth from contraction.

City of London analysts had pencilled in a reading of 52 and the news helped to send the pound down to $1.4166, 0.69 per cent lower on the day, as traders adjusted their forecasts of an earlier rate rise from the Bank of England.

“The construction PMI delivered meagre results for January as any hopes for a stellar start to the year were eclipsed by a surprisingly poor show from the housing sector, offering its worst performance since July 2016,” said Duncan Brock of the Chartered Institute of Procurement & Supply.

“With construction teetering on the edge of contraction, this surprise outcome will serve as a jolt to policymakers, that the impact of political and economic uncertainty remains large at the beginning of 2018.” 

The reading for residential construction turned negative, breaking a 16-month run of expansion.

Some analysts said that implosion last month of the giant construction and outsourcing firm Carillion had also negatively affected activity.

“The impact of Carillion’s liquidation has rippled down the supply chain and shaken confidence across the industry. There have inevitably been fears for the sub-contractors with exposure to the collapse,” said Max Jones of Lloyds Bank.

Stagnating builders

Official data for construction has been weaker than the PMI survey, showing the sector to be in recession since the middle of last year.

According to the most recent estimates from the Office for National Statistics, the construction sector contracted by 1 per cent in the final quarter of 2017, following a 0.5 per cent fall in the third quarter and a 0.3 per cent decline in the previous three months.

The Government has set itself a target of delivering 300,000 new homes a year.

An audit of surveyors this week found that only 12 per cent think the Government is likely to hit its target and many are worried about the prospect of a construction skills shortage due to the end of free movement of labour from the European Union.

Official statistics show that total annual new housing build starts were 166,100 in the year to September 2017.