Photographer: Chris Ratcliffe/Bloomberg

U.K. Construction Shrinks as Brexit Delays Investment Projects

  • Output falls larger-than-estimated 0.7% in second quarter
  • Surveys suggest worse to come for Britain’s building industry

Construction shrank for a second month in June and there are signs of worse to come as firms put spending plans on hold following Britain’s decision to leave the European Union.

The volume of output fell 0.9 percent following a 2 percent drop in May, the Office for National Statistics in London said on Friday. Output declined 0.7 percent in the second quarter, more than initially estimated.

Companies were reluctant to commit to projects before the June 23 referendum, and surveys suggest the problems facing the building industry are deepening. A closely watched index by Markit Economics showed activity contracting in July at the fastest pace since 2009.

It puts Chancellor of the Exchequer Philip Hammond under growing pressure to aid the economy with tax reductions and increased spending on infrastructure. The Bank of England took action last week by cutting interest rates to just 0.25 percent and pledging an extra 170 billion pounds of monetary stimulus.

Both new work and repairs and maintenance declined in June. There were falls in new private housing, infrastructure and public work, partly offset by gains in private industrial work and public housing. Repairs and maintenance dropped across the board.

The decline in the second quarter compared with the 0.4 percent drop estimated in an initial gross domestic product figures published last month. With construction accounting for 5.9 percent of GDP, the revision wipes just 0.02 percentage point off growth.

The slump has hit the shares of construction firms and homebuilders including Barratt Developments and Crest Nicholson, both down by about a quarter since the referendum. In its purchasing managers survey, Markit said all thee construction sectors -- housing, commercial and civil engineering -- shrank in July.

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