Construction sector grows for first time in two years

Britain's embattled construction industry grew for the first time since February 2008 last month as the sector ended two years of "relentless contraction", according to a report today.

The latest activity index from the Chartered Institute of Purchasing & Supply (CIPS) showed a surge in new orders helped the sector return to positive territory in March.

Its CIPS/Markit Construction Purchasing Managers' Index recorded a reading of 53.1 in March, up from 48.5 in February, where a reading of 50 or more indicates growth.

Incoming new orders increased during March for the first time in four months and only the second time since February 2008, CIPS said.

Residential housebuilders saw the strongest growth in activity and the seventh month of expansion in a row, while the commercial sector also saw growth for the first time in two years.

But the survey also confirmed the fragility of the sector's recovery, with another sharp decline in employment last month as redundancy programmes continued unabated.

Fears over cutbacks in Government spending also saw a drop in confidence among construction firms over future levels of new orders, although the survey showed a 15th month of optimism over new business.

David Noble, CIPS chief executive, said: "Though it's great to see the UK construction sector turn the corner after two years of relentless contraction, it's still very early days.

"The recession hit construction the hardest and because the industry is operating from such a low base, this upturn may be short-lived.

"Dwindling headcounts, as firms laid off staff at a quicker pace, coupled with weakened confidence about future business performance, suggests that the construction industry still has some concerns over the stability of the recovery."

The Government is expected to rein in spending on public sector construction projects as it seeks to reduce the UK's deficit.

The civil engineering sector, where activity is typically driven by public spending, has already shown an impact, with the pace of decline picking up pace in March.

Howard Archer, chief economist of IHS Global Insight, said the turnaround in the construction sector - which accounts for around 6% of gross domestic product in the UK - added to recovery hopes for the wider economy.

He said: "The purchasing managers' survey points to flat construction output in the first quarter of 2010, which is a significant improvement on the fourth quarter of 2009 when it contracted by 0.9% quarter-on-quarter.

"This boosts hopes that the economy continued to clearly grow in the first quarter of 2010 despite the significant weather-related hit to activity at the start of the year."