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Brexit and its effects on the construction sector

Confidence in the construction industry remains at near-record levels, but it is too soon to assess if the sector’s feel-good factor will be dented by the vote for Brexit, a study by Ulster Bank says.

The bank’s construction purchasing managers index (PMI) report for June, a barometer for the building trade that tracks order levels, recorded a significant acceleration in June, after growth had slipped back in May.

The index’s rate of expansion hit a three-month high with marked increases in overall activity, new orders and employment.

An expansion in the commercial sector led the way, followed by the housing sector and civil engineering.

Many of the responses for the PMI survey were returned prior to the British vote, however, leading the bank’s economists to warn the effect on confidence cannot be ascertained at this point.

The new business index has been expanding continuously for three years, while the overall index has been expanding ever since it first returned to positive territory after the crash in 2013.

Sub-contractors

The use of sub-contractors increased in June, having declined in each of the previous two months.

The availability of sub-contractors is contracting at one of the fastest rates in the history of the index.

The rush for new supplies and materials due to increased building activity has meant suppliers are slower delivering goods, according to the index. Lead times lengthened during the period.

Input costs rose, with the costs of insurance, oil and steel singled out for special mention.

“The rate of overall expansion picked up to a three-month high last month, as the headline index rose to 59.7 from 55.9 in May leaving it significantly above the 50 no changebenchmark,” said Simon Barry, chief economist for Ireland at Ulster Bank.

“[The] survey was conducted over the second half of the month, with the majority of responses returned prior to the UK referendum result. Thus, while some respondents knew the outcome of the referendum when responding to the June survey, it is too soon to judge the extent of any Brexit-related impact on confidence and activity in the construction sector.”

Ref: Irish Times

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