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Construction sector growth slows


Growth in the construction sector slowed in April but another solid rise in new orders shored up confidence in the year ahead.

The Markit/CIPS survey, where a reading above 50 represents growth, fell to 55.8 in April from a 21-month high of 56.7 the previous month, which was boosted by fine weather.

All three sectors saw growth, with commercial building leading the way, followed by civil engineering projects, but housebuilding saw only a marginal increase despite picking up since March.

New orders fell from a four-and-a-half year high in March but still saw strong growth, which helped buoy confidence to levels above those seen over most of the previous year and led to the second month of employment growth in a row.

Recent robust industry surveys for the construction sector have been at odds with official figures that showed the sector contracted by 3% in the first quarter of 2012, and contributed to the UK's double-dip recession.

Howard Archer, chief economist at IHS Global Insight, said: "On the face of it, this is a pretty encouraging survey that points to clear, decent construction expansion in April.

"Furthermore, pretty healthy new orders in April suggest that the construction sector is set for ongoing output growth in the near term at least, so is poised for appreciable expansion in the second quarter."

But he added that surveys should be "taken with a considerable dose of salt at the moment" because they are so far removed from official figures.

Economists are hopeful that figures from the Office for National Statistics have under-estimated the strength of the sector and will be revised higher in coming months.

The Bank of England has raised doubts about the official figures, calling them "perplexing" and saying it did not put too much weight on them.

Tim Moore, senior economist at Markit, said the survey was "generally buoyant", as growth in new orders helped confidence bounce back from a three-year low seen in the autumn.

But he said confidence was still below levels seen before the financial crisis, suggesting "a widespread loss of optimism" since the Government's 2010 spending review.

He added: "The worry is that the sector may suffer from a lack of large-scale new projects once current undertakings such as the Olympics are completed."

There was good news for the economy as the survey showed input price inflation sunk to its lowest for more than two years, fuelling hopes that inflation will come down in the next year, easing the pressure on households.

However, growth in employment was only moderate, which may be a sign of long-term fragility in the sector.