UK construction shrinks again as economy feels inflation heat-PMI

By William Schomberg

LONDON (Reuters) - British construction companies suffered a second straight month of contraction in the face of deep uncertainty about the outlook for the inflation-hit economy, a survey showed on Tuesday.

The S&P Global/CIPS construction Purchasing Managers' Index (PMI) came in at 49.2 in August, edging up from 48.9 in July but staying below the 50.0 threshold denoting growth.

Economists polled by Reuters had forecast a fall to 48.0.

"Not only did construction activity fall for the second month running, but a range of indicators from the survey pointed to further weakness ahead," Andrew Harker, economics director at S&P Global Market Intelligence, said.

New orders showed the weakest growth since June 2020 and concerns about the sector and the wider economy hit confidence, he said.

Job creation slowed but price pressures were their weakest since February 2021, a potential silver lining for the Bank of England as it monitors the impact of inflation in the labour market and the broader economy.

Civil engineering contractors suffered the biggest hit in the sector for a second month in a row while house-building activity increased for the first time in three months.

The all-sector PMI, which includes data for the services and manufacturing sectors released in recent days, fell to 49.6 from 51.8 in July, its lowest since January 2021, underscoring the challenge facing new British Prime Minister Liz Truss.

British consumer price inflation hit a 40-year high of 10.1% in July and is set to rise further.

(Reporting by William Schomberg; Editing by Hugh Lawson)