UK building sector contracts again but there may be light at end of tunnel

Canary Wharf buildingsThe UK’s construction sector has continued its recent pattern of contraction according to the latest survey of the Purchasing Managers’ Index (PMI) from Markit/CIPS UK. The last month’s index, published earlier today, showed at 46.8, where a figure below 50 indicates a decline in activity, marking the most significant monthly downturn since October 2009. The fall is the fourth consecutive monthly fall although there was a contrast between the commercial sector which endured the biggest drop and residential building which rose slightly.

New orders also declined for the ninth consecutive month running – the longest continuous period of decline since 2009. The pattern continued with the report finding that commercial construction had decreased at the fastest rate for just over three years, while the fall in work on civil engineering projects was the fastest since October 2009. Respondents highlighted cuts to client budgets and intense competition for new work as the main reason for the fall. More positively the report also noted an increase in employment numbers reflecting an anticipated growth in activity in the coming year.

This in turn reflects the latest figures from the Office for National Statistics which were published last week reporting that the volume of new construction orders in the fourth quarter of 2012 increased by 3.4 per cent compared with the previous three months – representing a £370m rise in new work.

Announcing the results of the latest CIPS/Markit report, CIPS CEO David Noble commented: “Overall, these figures are disappointing, to say the least, and all eyes will be on the chancellor to do something to prevent further decline in the sector as we approach the budget later in the month.”

Tim Moore, senior economist at Markit, said: “With total output falling at the steepest pace for over three years, the latest PMI survey is confirmation that January’s construction decline was not entirely snow-related. Downward pressure on client budgets alongside subdued public sector spending again led to lower output levels and reduced new order inflows.”