Confidence in construction curbed but sector remains in growth

3 August 2010

3 August 2010 | Lindsay Clark

The UK construction industry has sustained its growth in July, albeit at a reduced rate, according to the latest figures from the Markit/CIPS Construction Purchasing Managers’ Index (PMI).

The latest PMI for construction was down 4.3 points on June’s figure to 54.1, although crucially it remained in growth. A score of 50 indicates no change in activity.

While the expansion in UK construction activity slowed in July to its weakest in four months, new order growth was sustained, if at a slower rate. Meanwhile, employment fell despite increased output. Positive sentiment declined again, reflecting worries over public sector spending cuts.

David Noble, CEO of CIPS, said: “Although we’ve seen a marked slowdown in growth for the UK construction sector, the warning bells aren’t ringing yet and an immediate double-dip seems unlikely. Instead, we’re finally starting to see the growth in activity tail off and normalise at a slightly slower rate.

“Nonetheless, it’s telling that contractors accommodated the slowdown [in growth] by making immediate job cuts, reaffirming how tight things still are. In the face of ongoing public sector spending cuts and steep input price inflation, it’s really going to be a case of slow and steady wins the race.”

Sarah Ledger, economist at Markit and author of the UK Construction PMI, said impending public sector spending cuts and a scheduled VAT rise were weighing down confidence. “This was highlighted by the solid reduction in employment indicated during the month, as construction companies continue to review costs carefully,” she said.

The government’s efforts to reduce its deficit are likely to worry the construction industry. For example, in July it cancelled the procurement process for Building Schools for the Future, a project started under the former Labour government. Although some school building will continue under the new government, spending will be dramatically reduced.

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