2019.09.0305:10:00UTC+00UK Construction Shrinks For Fourth Month As New Work Falls Most In Over A Decade

UK construction sector contracted for the fourth consecutive month in August as new work declined the most in over ten years, leading business optimism to plummet to over a decade-low, data from IHS Markit's purchasing managers' survey showed on Tuesday.

The IHS Markit/CIPS UK Construction Total Activity Index fell to 45 from 45.3 in July. Economists had forecast a modest improvement in the reading to 45.9.

A reading below 50 suggests contraction in the sector and the score remained below this neutral mark for the fourth straight month.

In commercial building, the Brexit uncertainty continued to encouraged risk aversion among constructors, and consequently many clients have set tighter budgets.

Civil engineering activity dropped at a relatively sharp pace, while the decline in house building was the smallest since the downturn began in June.

New orders in the construction sector fell at the sharpest pace since March 2009 as weak demand conditions led to a shortage of tender opportunities and strong competition, especially in commercial building. Orders have dropped in each month since April.

Despite the weaker demand, employment decreased only marginally and at the slowest pace since the declining trend began in April, thanks to tight labor market conditions. Companies trimmed the payroll through the non-replacement of voluntary leavers.

Input buying decreased for the fifth straight month, marking the longest stretch of decline since the first half of 2013, due to softer demand. Input cost inflation slowed to its lowest since March 2016.

Business optimism decreased for a second straight month and was the weakest since December 2008 with firms mainly concerned about domestic political uncertainty and a corresponding drop in client spending.

"This provides an early signal that UK construction companies are braced for a protracted slowdown as a lack of new work to replace completed contracts begins to bite over the next 12 months," Tim Moore, economics associate director at IHS Markit, said.

Business confidence is now close to the lowest depth seen in the previous recession, Duncan Brock, group director at CIPS, said.

"The reality is, if a revival of confidence and a flood of new orders return to the construction sector in the coming weeks, much like a large tanker turning in a dock, there is little room for the sector to improve in the last quarter of the year," Brock said.

"It's likely September's data will be even more discouraging."