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Business News

Building sector returns to growth


The construction sector returned to growth last month, a survey said today, although housebuilders and commercial developers continue to weigh heavily on the industry.

The Markit/CIPS survey, where a reading above 50 represents growth, showed overall activity in the sector rose to 50.5 in October from 49.5 the previous month.

The rise was driven by moderate growth in the civil engineering sector for the second month running as residential building activity declined for the fifth month in a row. Commercial activity also dropped in October, but at only a marginal pace.

David Noble, chief executive at the Chartered Institute of Purchasing & Supply (CIPS), said the nation's builders are heading into a "long, dark winter".

He said: "Despite marginal growth in October, the prospects for the construction sector are bleak as firms prepare for the worst."

The October headline reading was much weaker than the average - 56.3 - seen in the decade leading up to the global financial crisis in 2008, highlighting an ongoing subdued trend in output across the sector.

The weak-performing construction sector has dragged on the wider economy this year, acting as part of the driving force behind the double-dip recession.

And even in the third quarter, when the UK left recession with 1% GDP growth, the construction output still declined, shrinking 2.5%.

The survey comes after the equivalent report for the manufacturing sector yesterday, when activity shrank for the sixth month in a row in October.

Despite the weak construction and manufacturing performance, many economists believe policymakers at the Bank of England will hold back from injecting further cash into the economy after their monthly meeting next week.

The Monetary Policy Committee (MPC) is expected to hold its quantitative easing stock at £375 billion despite earlier expectations of a boost, while interest rates are maintained at 0.5%.

The construction survey revealed that a lack of new work to replace completed projects resulted in a return to job shedding during October in the fastest fall in staffing levels since August last year.

There were more concerning signs for the inflation outlook, as input price inflation accelerated further from June's low.

Howard Archer, chief UK and European economist at IHS Global Insight, said: "The construction sector continues to be hampered by major headwinds, notably including public spending cuts, an extended weak economy, a struggling housing sector, and problems in getting funding for large-scale projects."