The signs were there, but now the evidence is too. Data on the construction industry for June shows that the building industry was being battered, even before the Brexit result was known. The closely-watched Purchasing Managers Index shows activity has fallen to a seven year low.
In other words, the type of paralysis that took hold during the financial crisis is now hitting the construction sector.
What’s more the survey was 80% completed before the UK voted to leave the EU. The prospects for July look dire and housebuilders shares have fallen heavily on the stockmarket again today.
Tim Moore, the senior economist at Markit that conducts this survey, says “the worry is that the ensuing political turmoil will hit construction spending decisions for some time to come.”
From the capital, where there are still many cranes on the skyline and skips in the streets it’s hard to understand how this can be happening. But there were many reports that businesses were refusing to commit to major projects, ahead of the EU referendum because of uncertainty. Since that uncertainty has increased manifold, very few companies will be keen to put their foot back on the gas.
Civil engineering activity has also ground to a halt.
But it is the implications for housebuilding that are really concerning. Despite an acute shortage of homes in the country, for some years now we have been very wide of the mark of building the 250,000 homes that are needed each year. The situation will not improve in 2016 as housebuilding is now contracting at the fastest rate since 2012 and the second fastest since April 2009.
Yesterday housebuilders, including Taylor Wimpey, Redrow and Crest Nicholson, called for urgent action - a “short, sharp bunch of incentives” that would help keep transactions moving.
The sort of things they are calling for – a reduction in stamp duty until the end of the year, a temporary nationwide extension of the more generous London version of Help to Buy – could make a real difference to the sector falling into the sort of slump that occurred from 2008 to 2010, they say. This latest data on construction also increases the chances that the Bank of England will have to apply the balm that the Governor Mark Carney mentioned last week – interest rate cuts and a resumption of quantitative easing.
Whether the sector’s needs will be at the top of the list of priorities remains to be seen.
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