2020.01.0311:40:00UTC+00UK Construction Logs Longest Downturn In Almost A Decade

The UK construction sector logged its longest downturn in activity in almost a decade in December due to political uncertainty and subdued client demand ahead of the general election, a closely watched survey showed on Friday.

The IHS Markit/Chartered Institute of Procurement & Supply construction Purchasing Managers' Index fell unexpectedly to 44.4 in December from 45.3 in November. The reading was forecast to rise to 45.8.

A score below 50 indicates contraction and the index has remained below 50 for the eighth straight month.

The current period of falling business activity across the construction sector was the longest recorded by the survey for almost a decade, IHS Markit said.

Civil engineering was the worst-performing category of construction in December, with activity falling at the fastest pace since March 2009.

It may take years to salvage the losses of the last three years, even if all obstacles are magically removed from the sector's path to recover, Duncan Brock, group director at the CIPS, said.

Brexit uncertainty and spending delays ahead of the General Election were once again the most commonly cited factors highlighted by firms experiencing a drop in construction activity, Tim Moore, an economics associate director at IHS Markit, said.

The Bank of England, on Friday, reported a moderate increase in mortgage approvals in November. The number of mortgage approvals rose to 64,994 from 64,662 in December.

However, net mortgage borrowing fell marginally to GBP 4.1 billion and the annual growth rate remained broadly at 3.3 percent.

Given the high house prices, a lack of homes for sale and tight mortgage regulation, the outlook for lending is subdued in 2020, Hansen Lu, an economist at Capital Economics, said.

The economist expects only a limited rise in house purchase mortgage approvals across 2020 and 2021, of 2 percent and 3 percent respectively.

BoE data also showed that the extra amount borrowed by consumers in order to buy goods and services fell to GBP 0.6 billion in November, the weakest in six years.

As a result, the annual growth in consumer credit eased to 5.7 percent. A similar slower growth was last reported in June 2014.

Elsewhere on Friday, data from the Nationwide Building Society showed that UK house price inflation exceeded 1 percent for the first time in 12 months in December.

The house price index rose 1.4 percent year-on-year following a 0.8 percent climb in November. The inflation rate was the highest since November 2018, when it was 1.9 percent, and was in line with economists' expectations.

On a month-on-month basis, house prices edged up 0.1 percent in December after a 0.5 percent increase in the previous month. The monthly changed matched expectations.

In the fourth quarter, the house price index rose 0.8 percent year-on-year after a 0.3 percent increase in the September quarter. House prices grew 0.4 percent sequentially.

Economic developments will remain the key driver of housing market trends and house prices, Nationwide's Chief Economist Robert Gardner said.

"Overall, we expect the economy to continue to expand at a modest pace in 2020, with house prices remaining broadly flat over the next twelve months," Gardner added.