Construction industry faces a third year in the doldrums

While other sectors of the economy have achieved at least a tentative recovery, the building trade remains mired in recession and is close to entering its third year of decline.

The Markit/Chartered Institute of Purchasing and Supply (CIPS) survey of managers in the construction sector shows sentiment remains weak, and is crucially below the 50 mark on their index, indicating a continuing, though moderating, contraction in activity.

The overall score of 48.6 in February, revealed yesterday, slipped from the January reading, with a marginal decline in new orders underpinning reduced levels of activity, and employment still falling sharply. Nevertheless, confidence about future activity levels is high, and the general trend is one of improvement since the low points of late 2008 and early 2009. The index has been below 50 since March 2008.

David Noble, the chief executive of the CIPS, said: "Though this was a relatively modest rate of contraction, tough operating conditions, dire weather and funding constraints dampened overall sector activity."

The building industry is particularly vulnerable to a slowdown in the housing market that many analysts expect this year and, in the longer term, cutbacks in public spending on infrastructure projects. Housebuilders were especially badly hit by the collapse in the housing bubble after the credit crunch. Even after the Bank of England reduced base rates to 0.5 per cent a year ago, and then injected £200bn directly into the economy, mortgage finance remains scarce for many, except on the most onerous terms – low multiples of salary, high deposits and up-front fees.

Oliver Gilmartin, senior economist at the Royal Institution for Chartered Surveyors, said: "More needs to be done in the coming budget to unblock bottlenecks in the system to help bring forward new housing completions in the coming years. Steps must be taken to maintain skills."