UK construction sector shrinks as output and orders drop

3 July 2012

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3 July 2012 | Kamalpreet Badasha

Falls in output and new work caused activity in the UK construction sector to contract last month.

The Markit/CIPS UK Construction Purchasing Managers’ Index for June fell to 48.2 points in June, dropping below the neutral 50 mark indicating contraction. The figure for May was 54.4. The drop was the greatest since February 2009.

Output dropped for both civil engineering and housing activity, which were the worst performing areas of construction since the weather-affected downturn in January. There was only a marginal increase in commercial activity.

“The anomaly of the double bank holiday at the start of the month will have had some negative impact but the underlying sluggishness throughout the industry could point towards a much softer period heading into the third quarter,” said David Noble, CEO at CIPS.

The June data showed a decrease in new work leading to lower levels of purchasing activity. Low stock levels resulted in poor vendor performance according to construction companies. Uncertain economic conditions and the extra bank holiday were cited as contributing factors to the drop in business activity.

Employment decreased marginally, which was the first fall in workforce numbers since February, due to a shortage of new work and cost cutting. This was supplemented by decline in the use of sub-contractors.

But input price inflation was weaker than in May, which respondents felt was due to low fuel prices offsetting higher energy and raw material costs. Continuing the positivity, construction firms expect an increase in business activity although output forecasts are conservative.

Tim Moore, senior economist at Markit, said: “The latest figures reveal worsening underlying business conditions within the sector. Construction firms’ assessment of future output dropped to an eight-month low in June.”

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