Slowdown in UK construction growth

2 February 2006
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02 February 2006 | Helen Gilbert

The UK construction industry's rate of expansion slumped to its slowest pace in 50 months, according to the latest CIPS Purchasing Managers' Index report.

The index, which measures the overall health of the construction economy, showed no signs of an upturn in the declining housing sector. Civil engineering continued to be the worst performing sub-sector in January.

Total construction activity was 50.7 last month and although an index above 50 indicates growth, the increase was marginal compared with December's 52.6 and November's 54.2. Commercial building was the only sub-sector to register a rise in activity. Even so, at 51.4 the commercial activity index dropped to its lowest reading since May 2003.

House building dropped for the fourth month in a row with an index of 48.9, compared with 49.6 in December, while civil engineering proved to be the weakest performing area, with 24 per cent of firms reporting a decline in activity since the previous month.

While levels of new business received by UK construction companies climbed in January, the new orders index registered 52.2, signalling the slowest rate of growth since November 2001.

Findings also revealed that price increases in raw materials were restricting the rate of growth in employment and purchasing, with the rate of input cost inflation reaching a 14-month high.

But it did not prevent input buying in the UK construction economy rising, with the quantity of purchases index standing at 52.4, compared with 51.2 in December.

Despite the slower expansion of new business, construction firms remained optimistic in their outlook for activity over the next year. The future business activity Index recorded 74.6, an increase on 75.1 the previous month.

Roy Ayliffe, director of professional practice at the CIPS, said: "Employment in the industry is on the up as companies look to take on extra staff to tackle existing orders, and an increase in new business leads and marketing activity is fuelling this optimistic outlook amid hopes of further growth as the year progresses."

* Coverage of previous months' PMI reports is available at www.supplymanagement.com/pmi

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