UK construction had an awful June. The sector's PMI weighed in at just 46.0, down some 5.2 points from its mid-quarter outturn and well short of market expectations. The latest reading, which was the also first sub-50 posting since April 2013, signals the worst performance in seven years. Just more than 80 percent of survey replies were received before the results of the Brexit vote were announced on June 24th.
The headline deterioration reflected hefty falls in commercial and residential business activity and prospects for any near-term recovery were not enhanced by the sharpest decline in incoming new work since the end of 2012. Uncertainty associated with the EU referendum was widely cited as a major factor. The only vaguely bright note was civil engineering which broadly stable.
Aggregate employment at least rose but by one of the smallest amounts in three years and sub-contractor usage increased at the slowest pace since July 2013. Business confidence in the year ahead fell to a 3-year low.
Today's results are clearly very disappointing and even with the Brexit vote out of the way, construction looks likely to contract further until companies begin to feel more confident about the outlook. Speculation about a BoE ease this month will receive a lift from this report and would be further boosted should tomorrow's service sector PMI come in anything like as weak.
The Markit/CIPS UK Construction PMI is based on data compiled from monthly replies to questionnaires sent to purchasing executives in over 170 construction companies. The panel is stratified geographically and by Standard Industrial Classification (SIC) group, based on the regional and industry contribution to GDP. Unlike other PMIs, this PMI focuses on one industry, namely UK construction.
The survey is based on techniques successfully developed in the USA over the last 60 years by the National Association of Purchasing Management. It is designed to provide one of the earliest indicators of significant change in the economy. The data collected are not opinion on what might happen in the future, but hard facts on what is actually happening at 'grass roots' level in the economy. As such the information generated on economic trends pre-dates official government statistics by many months.