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December construction boost will lift UK economy, says CIPS

A surprise rise in construction output in December is set to help the UK economy avoid a fourth quarter contraction, according to the Chartered Institute of Purchasing and Supply.

The latest Markit/CIPS Construction Purchasing Managers’ Index, which surveys purchasing executives in over 170 construction companies, was published this morning, posting 53.2 in December, up from 52.3 in November.

The fastest growth was in civil engineering, where output trends have been volatile over recent months. Residential construction increased for a second month running, but commercial growth eased to the slowest since December 2010.

Sarah Bingham, economist at Markit and author of the UK Construction PMI, said:  “The survey suggests that the sector should make a positive contribution to the economy in the final quarter of the year, helping avoid a possible slide back into contraction.

“The data so far suggest that gross domestic product probably stagnated in the final three months of the year. However, UK Service PMI data released tomorrow will allow for a more accurate estimate of overall GDP.”

But the CIPS also said the mixed picture - along with a subdued response to the year ahead as optimism is hindered by concerns over low client confidence and worries over wider economic and market conditions - means there is “little to raise the spirits”.

There was a rise in new business and a modest increase in employment, but while the index is stronger than the previous period, it is still below the series average.

The latest research also comes after the Construction Products Association downgraded its forecast for 2012 to a 5 per cent decline over the year.

David Noble, CIPS chief executive, said: “Civil engineering was the star performer with the strongest increase on the previous month but this must be viewed in the context of volatile activity flows at the end of the year, and it’s still too early to measure the impact of some of the big Government spending projects announced in the Autumn Review statement.

He added:  “Though there were modest increases in employment, it’s likely that many firms were hiring through necessity rather than optimism about any pick up in business in the next couple of months.”

Andrew Duncan, managing director at consultancy Turner & Townsend, said: “New business orders have now increased for three consecutive months, but the industry’s confidence remains very weak. For years, London’s construction industry has enjoyed a boost from the Olympics projects, but with most work now almost finished, that crutch is about to be removed. There will be a few post-Olympics legacy projects as venues are converted to other uses, but the level of work provided will fall off dramatically.”

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