Weak housebuilding hits construction

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The construction industry – which has endured extreme boom and bust conditions in recent years – is showing renewed signs of weakness, according to the latest survey of business sentiment in the building trade.

The Chartered Institute for Purchasing and Supply (Cips) found that job cuts by building firms were at their highest level in five months and that overall confidence was at its lowest since the start of the year. Continued weakness in the residential property market, itself constrained by a shortage of mortgage finance and collapsing consumer confidence in the face of the Government's public spending cuts, is one of the main drivers. Civil engineering work is showing more a hopeful trend but generally, a slower expansion of new orders was weakening activity, the Cips said.

The figures come after a disappointing Cips manufacturing survey on Friday, indicating a slowdown in the industrial revival. Data from the Cips today on the service sector – about 70 per cent of the economy – will be nervously awaited, especially by Bank of England policymakers who will make their next announcement on interest rates and quantitative easing on Thursday. Sentiment in the Monetary Policy Committee appears to be moving towards a further easing of policy, but much will depend on whether the recent soft patch in the recovery is showing signs of permanence.

In terms of the readings, a figure of more than 50 in the Cips index points to future expansion and the purchasing managers index edged back to 53.6 in June, from 54 in May.

Howard Archer, of IHS Global Insight, said: "The Coalition's extended pruning of public spending will clearly limit expenditure on public buildings, schools, hospitals and infrastructure. Furthermore, housing activity is still very weak compared with long-term norms, house prices are soft and the outlook ... remains worrying.

"This could well weigh down significantly on housebuilding. And if the economy continues to struggle for momentum over the coming months, commercial construction is likely to be hit."