UK construction activity grows but recovery 'remains fragile'

2 July 2010

2 July 2010 | Lindsay Clark

The UK construction industry experienced strong growth for the fourth successive month in June, although the prospect of public spending cuts and rising prices are creating a gloomier outlook.

According to the Markit/CIPS Construction Purchasing Managers’ Index (PMI), activity in the sector held at 58.4 in June, only marginally down from May’s 58.5, where 50 indicates no change.

Despite the expanding activity in the sector, which has suffered in the recession, employment in UK construction was broadly unchanged during June. Subcontractor usage increased marginally, although at a weaker pace than in the previous month, the survey showed.

CIPS CEO David Noble said questions loomed over the sustainability of this recovery of the construction sector in the longer term because of rising input prices.

“Curbing inflation continues to be a big issue facing firms and from our experience they are likely to be nervous about offsetting their higher costs by passing them on to clients. The sector is also bracing itself for another spell of troubled times following the public spending cuts and forthcoming VAT rises announced by the Government last month.”

Last month, the government said it would slash departmental budgets by an average of 25 per cent, with the exception of health and foreign aid, in an emergency Budget designed to reduce the public sector deficit.

“Recovery in the second half of the year is likely to remain fragile and we are still a long way off seeing the industry operate the way it did pre-recession,” Noble said.

Sarah Ledger, economist at Markit and author of the UK Construction PMI, said confidence in the sector had been knocked. “This was highlighted by ongoing reluctance to add to workforces, despite the sustained expansion in activity.”

Further coverage of PMI reports is available here.

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