House builders face 'year of concern'

Britain's builders suffered a "disappointing" end to 2010 and now face a "protracted year of concern" as residential property construction registered its sharpest fall since the depths of the recession.

Confidence among construction firms is "historically subdued", according to the latest survey of opinion among managers by the Chartered Institute for Purchasing and Supply.

The Cips finds that there was a marginal overall drop-off in activity in December, with employment falling sharply, exacerbated by the very cold weather. The seasonally adjusted Markit/Cips Construction Purchasing Managers' Index of Confidence showed a reading for December of 49.1, down from November's 51.8 and 58.5 in May. Index readings much below 50 generally herald contraction.

However, in an ominous sign for the wider housing scene, the residential construction index stands at 43.1 – its lowest since April 2009, and a dramatic fall on the 47.3 seen in November. Continued weakness in the supply of mortgage finance and increasingly timid buyers are exacting a heavy toll on new house building. Recent figures from Nationwide and Halifax confirm a declining trend in prices in a very slow market.

David Noble, the chief executive at the Institute, said: "A disappointing end to the year for the sector, as the index drops into contraction again.

"The overall picture for 2011 is also likely to stay subdued. Yet, confidence about future activity rose in December based on a rise in new orders, despite poor weather, and hopes for a general economic improvement. However, this was at a slower pace than the previous month, and it is telling that purchasing managers saw the gradual easing of competition as one of the factors contributing to this.

"A major worry is the situation in the housing market. Proposed measures to further tighten regulations on mortgage lending may only serve to intensify this worry into a longer, more protracted year of concern."

Civil engineering also saw a contraction in December, as public spending cuts begin to make their presence felt; commercial property was the only sub-sector to show much sign of life.