Britain’s Construction Sector Echoes Growth in October

on Nov 5, 2012

**Industry Survey Shows Slight Improvement in UK Construction Activity**

Recently, Britain showed signs of emerging from the double-dip recession, by growing by 1 per cent in the third quarter of the year. Yet construction was one sector that remained in the doldrums, shrinking by 2.5 per cent. Squeezed budgets and clients’ worries about the economic outlook have resulted in the longest period of falling new order volumes since the height of the crisis in 2008/09. Adding to construction firms’ woes, costs rose significantly due to higher fuel and energy prices, ramping up the pressure on margins.

Despite the prolonged downwards movement of the industry, The Times reported on 3 November 2012, citing closely watched industry survey, that activity in Britain’s construction sector has finally edged up in October in a further sign that the economy is dragging itself out of recession. The Markit/CIPS Construction PMI index rose to 50.9 in October from 49.5 in September, where any rating above 50 signifies growth. The improvement was mainly triggered by higher levels of output in civil engineering, while house building remained weak, with output declining for the fifth month in a row, the Markit survey showed.

“The Bigger Picture Remains Bleak”
Although indicating expansion rather than contraction, October’s reading was much weaker than the average seen in the decade leading up to the global financial crisis in 2008, when the Construction PMI index was 56.3. A lack of new work to replace completed projects has also resulted in jobs being shed. Although much less than the job cuts witnessed in 2008-09, Markit said that the latest fall in staffing levels was the fastest since August last year.

!m[Despite Increased UK Construction Activity, “The Bigger Picture Remains Bleak”](/uploads/story/722/thumbs/pic1_inline.png)Tim Moore, senior economist at Markit, which compiles the monthly survey, said: “The bigger picture remains bleak. The year-ahead business outlook was still relatively subdued during October, as survey respondents cited weak spending patterns and squeezed budgets among clients.”

**Analysts Warn Worse Was to Come**
Following the survey results release, some economists warned that worse was to come as new construction projects fail to realise. David Noble, chief executive at the Chartered Institute of Purchasing & Supply, said: “Despite marginal growth in October, the prospects for the construction sector are bleak as firms prepare for the worst. They are heading into a long, dark winter by shedding jobs and laying off subcontractors in response to the longest decline in new business since the start of the financial crisis.”
Yet earlier data from construction industry analyst Glenigan shows more optimism that the sector will pick up. According to Glenigan’s analyst team, the value of building projects started between August and October was broadly flat compared to a year ago, but activity would have been far worse had it not been for a 58 per cent jump in private housing projects. They added that the Bank of England’s Funding for Lending Scheme, in which it provides cheap funding to banks if they continue lending to households and businesses, was beginning to have some positive impact on credit conditions and house builders started new projects in anticipation of more sales next year.