'Teetering on the edge of contraction': Britain's construction sector is in trouble

Britain's construction sector is "teetering on the edge of contraction," according to the latest PMI survey from IHS Markit.
The sector showed a reading of 50.2 in January, down from 52.2 in December, and well below the 52 reading that was expected.
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.

LONDON — Britain's construction sector is "teetering on the edge of contraction" after posting a worryingly low reading in IHS Markit's widely watched PMI survey, released on Friday.

"UK construction companies reported a subdued start to 2018," IHS Markit said in a release, which showed a reading of 50.2 for the sector in January, down from 52.2 in December, and well below the 52 reading that was expected.

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 sector.

"The construction PMI delivered meagre results for January as any hopes for a stellar start to the year were eclipsed by a surprisingly poor show from the housing sector, offering its worst performance since July 2016," Duncan Brock, head of customer relationships at CIPS, which helps compile the PMI survey, said.

"Not even a marginal improvement in commercial and civil engineering could prevent a near-stagnation in overall activity as the index hovered near the no-change mark."

Here's the chart, showing construction PMIs over the longer term:

January's downbeat reading was largely driven by a contraction in activity in the housebuilding sector.

"A return to contraction in residential building activity was accompanied by near-stagnant commercial and civil engineering activity. New orders declined, linked by many companies to market uncertainty," IHS Markit said.

Samuel Tombs, chief UK economist at Pantheon Macroeconomics said that January's reading suggests the sector remains in the recession it entered towards the end of 2017.