UK Construction Sector Stabilises, Pound Maintains Climb on Dollar

The construction industry in the UK has continued to decline in August, but the pace of the fall in productivity slowed, according to the latest Markit/Chartered Institute of Procurement and Supply Purchasing Manager Index (PMI), the index score of 49.2, an increase from the 45.9 seven year low that was recorded for July, although still below the neutral score of 50,  was higher than the forecast of 46.1 from some analysts.

Following the positive data from Markit over the manufacturing sector that was released yesterday, where the index reached 53.3 after the biggest month on month turnaround in the survey’s 25 year history, the construction survey easing in its regression is more good news for the UK economy post ‘Brexit’.

The pound rose sharply against the dollar yesterday after the manufacturing news broke through, and appreciated against the greenback from the GBP/USD rate buying just under $1.315 to over $1.33, this morning GMT after the construction results were release, sterling was buying $1.327.

An increase in new order volumes was one of the main pattern shifts in the industry, which enabled a renewed rise in staffing levels across the sector, and a rebound in business expectations for the next 12 months.

In the breakdown of the sector, the PMI highlighted that there were much slower reductions in the housing activity and commercial buildings, for both cases the downturn in August was the slowest that there had been for three months, meanwhile, civil engineering activity stabilised in August, following a reduction during the previous month.

Survey respondents believed that leaving the European Union (EU) has had a detrimental effect on the construction industry, especially in house building and commercial work, more positively those questioned did say that there has been a slight rebound in client confidence from earlier in the summer, a number of firms noted that sales volumes had been more resilient than expected.

FC Exchange in their daily report said that it seems that Brexit is not having a detrimental effect on the UK economy at the moment, and the recent fall in the pound has spurred demand from overseas for UK manufactured goods

The falling pound has put a brake on industry profits, as purchasing prices rose at its fastest pace in five years, as reports suggested that the exchange rate depreciation had acted as a catalyst for increased charges among suppliers of construction materials.

Looking ahead, construction firms pointed to a rebound in business confidence from July’s 39 month low, although the degree of positive sentiment was the highest since May, it remained close to the weakest recorded over the past three years.

Meanwhile, industry producer prices increased by 0.1% in the euro area and in the EU month on month in July, a fall from the 0.8% rise in prices in both zones in June, overall in July , compared with the corresponding month last year, industrial producer prices decreased by 2.8% in the euro area and by 2.5% in the EU.

The figures will not make good reading for the European Central Bank who are trying to boost inflation to their 2% target, which is expected to be stable at 0.2% in the euro area for August, the EUR/USD rate is currently $1.117 from over $1.2 this morning GMT.