Building firms braced for bleak winter
Thursday 02 December 2010
Construction firms were braced today for a bleak winter after figures showed subdued levels of activity and a nine-month low for growth in new orders.
The latest Markit/CIPS Purchasing Managers' Index (PMI) survey - where a reading above 50 indicates growth - moved to 51.8 in November, slightly up from its eight-month low of 51.6 in October.
The industry reduced its workforce for the fifth month running and purchasing orders declined for the second month in a row, as projects were deferred or delayed by protracted negotiations.
David Noble, chief executive at CIPS, warned the industry will remain "stuck in a rut" until the economy recovers.
The figures are worrying because the construction industry has been a major factor behind the UK's economic growth this year.
The sector only accounts for 6.3% of GDP but was responsible for half of the 1.2% GDP growth in the second quarter and a quarter of the 0.8% GDP growth in the third quarter.
Howard Archer, chief economist at IHS Global Insight, warned "the economy will not be able to rely on a significant growth contribution from the construction sector going forward".
However, confidence about the future hit a five-month high although it remained well below pre-recession levels.
Mr Noble added: "In the short term, the prospects for the UK Construction sector look gloomy but confidence about possible recovery in the next 12 months has risen.
"Perhaps most concerning is the fall in employment levels, which reflects job cuts rather than a freeze on new hires."
Civil engineering projects returned to slight growth in the month but housebuilding recorded its third month of decline following 12 months of growth up to August. The strongest growth was shown by the commercial building sector.
The construction sector has now clocked up nine months of growth, as it rebounds from a massive contraction that saw it slip to 29.3 on the index in December 2008, its lowest score since the measure first started in 1997. Its growth peaked in May but slowed every month until November.
Construction figures saw a big leap in second and third quarters because they were compared with a deep recession the year before and the severe winter delayed works until the spring.
But the current trading environment is likely to remain challenging, with the government spending cuts likely to see civil construction projects shelved and the falling price of homes depressing the housebuilding market, added Mr Archer.
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