The UK construction sector is contracting again, with a clear risk of spillover

Construction work can be seen on office towers in the City of London, UK

LONDON, Aug 2 (Reuters) – Activity in Britain’s construction industry fell for a third month in a row in July as Brexit concerns weighed on construction projects and fears the slowdown could soon spread to other areas of the economy, a survey showed Friday.

The IHS Markit/CIPS Construction Purchasing Managers’ Index (PMI) rose to 45.3, a less severe decline from June’s 43.1, which was the weakest reading in more than 10 years but still well below the 50 level at which it starts growth.

Economists polled by Reuters expected a stronger rebound in the index to 46.0.

A sharp decline in new orders – for four straight months – meant a quick recovery was unlikely and confidence in the sector was at its lowest level since November 2012, IHS Markit said.

“Construction companies have begun to respond to lower workloads by reducing input purchases, reducing employee numbers and using subcontractors,” said Tim Moore, deputy director of economics at IHS Markit.

“If the current rate of cuts in the construction sector continues, the supply chain will soon be impacted and spillover effects on other parts of the UK economy will quickly become apparent.”

Bank of England Governor Mark Carney said on Thursday there was “deep uncertainty” weighing on Britain over Brexit and the rise of protectionism in the global economy.

IHS Markit said commercial work was the hardest hit in July, while the civil engineering and residential construction sectors also contracted.

Construction makes up 6% of the UK economy, which relies heavily on consumer spending to offset the decline in business investment during the Brexit crisis.

On Thursday, the PMI for the manufacturing sector – which represents 10% of the UK economy – remained at a six-and-a-half-year low in July, with output falling by the most in seven years.

The PMI for the UK’s dominant services sector will be published on Monday.

(Writing by William Schomberg; Editing by John Stonestreet; [email protected])