Building slump reinforces triple-dip fears - Business News - Business - The Independent

Building slump reinforces triple-dip fears

 

A shrinking construction sector in November has reinforced fears of a triple-dip recession and set a bleak backdrop for George Osborne’s Autumn Statement tomorrow.

A survey of purchasing managers in the building sector by Markit/CIPS today showed confidence falling to its lowest level in almost four years in November.

The month also registered the most severe drop in new orders for construction firms since the depths of the 2009 recession.

The PMI Index of building activity  in November fell to 49.3,  down from its level of 50.9 the previous month.

Analysts had expected the index to soften, but remain above the 50 level that separates expansion from contraction. Weakness in housebuilding, which has now fallen for six straight months, drove down the index.

The Chancellor has come under pressure to reverse some of his severe cuts to government infrastructure spending in order to support the economy.

Tim Moore of Markit said the worst was yet to come for the sector, whose level of output is almost 11 per cent lower than this time last year.

“November’s PMI survey suggests that construction output has yet to hit rock bottom,” he said.

There were signs of further construction job losses, with employment falling at the fastest rate since December 2010.

Today’s Markit/CIPS survey pointed to a continued contraction in manufacturing. A survey of purchasing managers in the dominant services sector will be released tomorrow. The economy emerged from recession in the third quarter of 2012 with growth of 1 per cent.

Northgate, the white van hire group which is seen as a barometer of the smaller business end of the economy, saw profits slide 13% in the last six months as demand slowed and rental rates remained flat. “Against the backdrop of a fragile economy, trading in the UK remains challenging,” the firm said.

It said that although average hire rates in the UK had remained stable since the start of its financial year in its other major market Spain which it described as a “very difficult market in which to operate” rental have fallen by 1%.

Once again the firm has cut the number of vehicles it has in its fleets out for hire - by 1900 in the UK to 51,000 and by 700 in Spain to 37,700.

Chairman Bob Mackenzie said that current trading was “broadly in lin e with the board’s expectations” which analysts took to mean there is not much sign of improvement in either market.

Northgate said headline profits fell 13% to £28.1 million in the six months to October on revenues down 16% at £314 million. It also restored an interim dividend of 1.3p a share - the first it has paid for three years. But the shares fell 11p to 256p.

Analysts at Panmure Gordon said: “While the operational control in the business is clearly paying dividends, we think market conditions will remain tough across both of its end markets during the foreseeable future.”

The broker downgraded the shares from Hold to Sell after a recent strong performance with a target price of 230p.

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