Britain's construction industry suffered its sharpest downturn in seven years last month, according to new survey.
The Markit/CIPS UK Construction Purchasing Managers' Index (PMI) inched down to 45.9 in July from 46.0 in June - the lowest reading since June 2009 and some way below the 50 mark that divides growth from contraction.
However, the latest Barbour ABI report shows new orders reaching £6.2 billion in June, the highest figure of any month so far in 2016. It contrasts to other recent surveys and highlights the uncertainty that exists within the industry.
Indeed, construction firms frequently cited ongoing economic uncertainty hurting their order books, Markit said.
Clients of construction companies had adopted a 'wait-and-see' approach to projects, rather than cancelling them outright or reducing their scope, the survey showed.
The survey of 170 construction companies showed firms cut staffing at the fastest rate since November 2012, with this component of the index falling to 49.3 from 52.5 in June.
Commercial work, which accounts for almost a third of total new construction work, contracted at the fastest rate since December 2009.
Tim Moore, Senior Economist at Markit and author of the Markit/CIPS Construction PMI, said: "July’s survey is the first construction PMI compiled entirely after the EU referendum result and the figures confirm a clear loss of momentum since the second quarter of 2016, led by a steep and accelerated decline in commercial building.
"Reduced volumes of new work to replace completed projects contributed to a fall in employment for the first time in just over three years. UK construction firms frequently cited ongoing economic uncertainty as having a material negative impact on their order books. In particular, survey respondents noted heightened risk aversion and lower investment spending among clients, notwithstanding a greater number of speculative enquiries in anticipation of lower charges.
“Meanwhile, exchange rate depreciation resulted in sharper input cost inflation and there are concerns that additional supplier price rises for imported materials could be around the corner.
“However, it’s not all bad news, at least in so far as the decline in construction output was little-changed from June’s seven-year low. There were also some reports that demand patterns had been more resilient than expected given the uncertain business outlook. Reflecting this, new order volumes and purchasing activity both dropped at a slightly slower pace than in the previous month.
“Construction firms generally suggested that clients had adopted a wait-and-see approach rather than curtailed or cancelled projects during July. While there is little to suggest an imminent turnaround in business conditions, a relief factor appears to have softened the fall in business optimism among UK construction companies."
Last month the Bank of England said it expected "sizeable falls" in commercial real estate prices in the near term and a number of funds investing in the sector temporarily stopped investors withdrawing funds.
Housebuilding declined for a second month, albeit at a slightly slower pace than in June. Prices paid for raw goods and materials for both construction and manufacturing increased at the sharpest pace since March 2015, which Markit linked to sterling's depreciation since the referendum.
According to the June edition of the Economic & Construction Market Review from industry analysts Barbour ABI, the two stalwarts of the construction sector; residential and infrastructure, both had year on year rises in June, with contract values increasing by 26 per cent and 20 per cent respectively.
Commenting on these figures, Michael Dall, lead economist at Barbour ABI, said: “With the majority of the sector under the assumption that the UK would not vote to leave the European Union the result left many surprised, and our June figures are under the assumption that it would be ‘business as usual’.
“We have seen housebuilder stocks fall in the wake of the vote and anecdotal evidence that projects are being cancelled. However, that is not evident in the data as of yet and it is a case of wait and see in terms of the impact Brexit may have."
