Construction growth continues

 

Construction activity in the UK grew last month, according to a closely-watched survey, but experts warned the wider economy was still likely to have stagnated at the end of last year.

The Markit/CIPS purchasing managers' index survey for construction, in which a reading above 50 represents expansion, rose to 53.2 in December from 52.3 in November, boosted by new business and a rise in employment.

Civil engineering projects, such as the Crossrail scheme in London, recorded the fastest growth in the month, while housebuilding increased for the second month running. Commercial construction grew but at its slowest pace in a year.

While the whole sector has grown for 12 months in a row, economists warned it only makes up 7.6% of the total economy, and the strong performance is unlikely to have had a significant impact on gross domestic product (GDP) in the final quarter of 2011.

Howard Archer, chief UK and European economist at IHS Global Insight, said the economy's overall performance in the final quarter of last year will depend on how well the powerhouse services sector performed.

He said: "It is welcome news to see any evidence that part of the economy is growing at the moment. However, signs that construction output expanded in the fourth quarter of 2011 does not hugely dilute concern that GDP could have contracted."

New business received by UK construction companies increased for a third consecutive month in December, Markit said, reflecting a general rise in tender opportunities and successful bids. But the growth had eased slightly on the month.

The data also signalled a rise in employment in the construction sector as new orders increased, although the use of sub-contractors declined.

Construction firms also reported a continued rise in input prices, as raw material and energy costs increased, which may fuel fears that the rate of inflation will not cool as quickly as hoped by the Bank of England.

Construction companies were optimistic last month that activity would increase over the next year, but the degree of positive sentiment remained relatively subdued, Markit said.

The PMI data for the services sector will be published tomorrow.

PA

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