Construction sector suffers sharp decline
Tuesday 03 July 2012
The UK's construction sector suffered its sharpest contraction in two-and-a-half years in June, dealing a further blow to the UK's recovery hopes.
The Markit/CIPS survey, where a reading above 50 represents growth, showed overall activity in the sector fell to 48.2 in June from 54.4 the previous month - representing its biggest monthly fall since February 2009.
The Queen's diamond jubilee and bad weather played a part in the decline but the survey also revealed weaker underlying business conditions, the lowest confidence levels since October and the first fall in workforce numbers since February.
Civil engineering and housebuilders were the worst performing sectors, with both seeing a drop in output for the first time since January, while commercial activity increased at its slowest pace for 28 months.
Howard Archer, chief European and UK economist at IHS Global Insight, said: "The construction purchasing managers' survey for June was substantially weaker than expected and hugely disappointing."
Output fell to its lowest level for two and a half years, while new work contracted for the first time in eight months.
The weaker construction data will come as a blow to hopes that the UK can pull quickly out of its current double-dip recession.
Official data showed a nearly 5% contraction in the sector in the first quarter of 2012, which has been at odds with the Markit surveys that have until recently shown the sector to be much more resilient.
Blerina Uruci, an economist at Barclays, expects the sector to fall 3.4% in the second quarter, adding that the Markit survey reflected the poor performance of the housing market and falling levels of Government infrastructure spending.
CIPS chief executive David Noble said: "The anomaly of the double bank holiday at the start of the month will have had some negative impact but the underlying sluggishness throughout the industry could point towards a much softer period heading into the third quarter."
The weak data will ramp up expectations that the Bank of England will order an increase to its quantitative easing programme later this week in a bid to boost the economy.
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