Britain’s construction sector is finally back to growth and is beginning to see the shoots of a recovery, according to the latest data released by IHS Markit on Tuesday morning.
IHS Markit and CIPS’ latest PMI release for the construction sector in September came in at 52.3, substantially above August’s 49.2 reading, and also much higher than the 49.0 that had been forecast by economists in the run up to the release.
The purchasing managers index (PMI) figures from IHS Markit are given as a number between 0 and 100.
Anything above 50 signals growth, while anything below means a contraction in activity — so the higher the number is, the better things look for the UK.
Construction PMIs collapsed in the immediate aftermath of the UK’s vote to leave the European Union, but as the dust has settled after the vote, the ship steadied somewhat in August, and has now returned to growth for the first time in four months.
Here is the chart, showing September’s move back into positive territory:
Speaking about the results, Tim Moore, a senior economist at Markit said (emphasis ours):
“UK construction companies moved back into expansion mode during September, led by a swift recovery in residential building from the three-and a-half year low recorded in June.
“Resilient housing market conditions and a renewed upturn in civil engineering activity helped to drive an overall improvement in construction output volumes for the first time since the EU referendum.
“A number of survey respondents noted that Brexit related anxiety has receded among clients, although it remained a factor behind the ongoing decline in commercial building work.”
However, David Noble, Group Chief Executive Officer at CIPS did warn that the sector isn’t in the clear just yet, saying in a press release alongside the figures (emphasis ours):
“The sector still faces challenges with continuing pressures on input prices resulting from the weaker pound and the lingering uncertainty of the Brexit process and how it will impact on future business.”
Britain’s construction sector has been the subject of much worry in recent years, and those woes have intensified in 2016. It is worth noting that while it is widely respected, IHS Markit’s PMI is not a hard data point, with the most recent official dats suggesting that the sector fell into recession in the first half of the year.
In mid-August, numbers from the ONS showed that the British construction industry, the sector of the economy that makes sure we have got roofs over our heads and offices to work in, slipped into recession during the first half of 2016.
Output in the sector dropped by 2.2% year-on-year in June, following on from a 1.6% y-o-y fall in May. Annual construction output has now fallen for every single month of 2016 so far.
On a month-to-month basis, output actually fell less than expected, dropping 0.9% against a forecast of 1%, but regardless of that, the construction industry’s huge slump is troubling.
The construction PMI follows on from a massive surprise to the upside in Monday’s manufacturing PMI release. IHS Markit’s growth data showed that Britain’s factories recorded activity of 55.4 in September, up a full two points from August’s 53.4 reading, and marking a level not seen since June 2014. Forecasters had the projected that the sector would grow more slowly in the month, predicting a reading of 52.1.
The headline reading also represented the joint highest single monthly gain since the PMI survey began 25 years ago, jumping from 48.3, a 41-month low, in July.
The pound moved very little on the release, remaining subdued at a fresh 31-year low as fears about a hard Brexit intensify. Here’s how it looks a little after the release: