Britain’s challenged construction industry suffered a further fall in output in the month leading up to, and including the EU membership referendum, as investor nerves about a fall in property prices led to spending decisions being put on hold.
Output fell 2.2 per cent year-on-year in June, according to official; data, following a 1.6 per cent drop the previous month. Annual output has fallen every single month of this year (see chart above, from Bloomberg). Economists had pencilled in a slightly weaker 2.1 per cent decline.
Month-on-month output dropped 0.9 per cent following a 2 per cent decline in May. Economists had expected a 1 per cent fall in monthly output.
Survey data since Britain’s vote to leave Europe have painted a mixed picture about how the economy as a whole is faring but the well-respecting purchasing managers index for the construction industry has suggested activity deteriorated further after the referendum on June 23.
The PMI – produced by data group Markit – fell to a fresh seven year low in July, led by a steep decline in commercial building.
Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said the latest ONS data confirm Britain’s construction sector re-entered recession in the first half of the year. He wrote:
Construction output now is estimated to have fallen by 0.7% quarter-on-quarter in Q2, following Q1’s 0.4% drop.
The downturn looks set to deepen in Q3; July’s construction PMI broadly is consistent with output falling by about 3.5% quarter-on-quarter.
Meanwhile, Brexit negotiations will be protracted, so businesses will hold off committing to major capital expenditure for a long time to come. In addition, the public investment plans won’t be reviewed until the Autumn Statement at the end of the year and few construction projects are genuinely ‘shovel ready’.
Construction and property stocks were among the biggest victims of a sharp fall in UK-focused stocks in the immediate aftermath of the vote to quit the EU, although both the FTSE 100 and FTSE 250 indices have since recovered all of their post-Brexit vote losses.
According to the ONS, output fell in almost every segment of the construction sector in June (see table below)
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