Construction industry lost steam last month, survey shows

UK construction industry lost some steam in June - survey

Britain’s construction industry lost some steam in June and firms were less optimistic about the outlook, a survey showed.

The Markit/CIPS construction PMI index eased to 53.6 points from 54.0 points in May, broadly in line with analysts’ forecasts of a dip to 53.7 points.

“June data rounds off a further solid quarter of growth, albeit down on the first quarter,” Markit economist Sarah Bingham said.

“This contrasts with the surprising weakness seen in the official data for the first three months of the year,” she said.

Official statistics showed that construction, which makes up for about 6 per cent of British economic output, contracted by 3.4 per cent in the first quarter, contradicting the expansion signaled by the PMI surveys.

The dip in the construction PMI follows a surprisingly sharp slowdown in manufacturing industry which fuelled concerns about the health of the broader economic recovery.

The construction PMI showed that commercial and civil engineering companies saw output rising while house building shrank for the second time over the past three months.

Separate data from the Bank of England also highlighted the weakness in the housing market. Homeowners continued to pay back their mortgage debt at a quicker pace than they added to it. Britons injected some 5.8 billion pounds of equity into their homes in the first quarter.

Britons have injected equity into their homes for the past three years, reversing the trend of home equity withdrawal to fund other spending that had dominated the previous decade, when people used mortgages to finance their consumer spending.

“The ongoing appreciable net injection of housing equity is adding to the constraints on consumer spending most notably including negative real wage growth, the increasing fiscal squeeze, high unemployment and elevated  debt levels,” IHS Global Insight analyst Howard Archer said.

Weak consumer spending has become the main drag for the UK economy, struggling to gain momentum after a shock contraction at the end of last year, and it is also weighing on house prices and prospects for the building industry.

“The worry is that the level of business confidence has fallen to a six-month low in the sector, which suggests that companies are expecting growth to weaken over the next twelve months,” Markit economist Bingham said.

“That is perhaps not altogether surprising given a marked easing in the rate of expansion of new business inflows in June,” she said.

The survey also showed that firms cut back staff as a result of the slowdown in orders.

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