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Construction industry output slump the worst since 2009, Markit/CIPS survey data shows

Construction activity is suffering its sharpest slump since October 2009, a new market index shows.

February data for the monthly Markit/Chartered Institute of Purchasing and Supply Construction Purchasing Managers’ Index showed overall output in the sector dropped to 46.8, from 48.7 during January as tight public sector spending and squeezed budgets from private clients took their toll.

The index has posted below its ‘neutral’ level of 50.0 in each of the past four months, which its promoters said signalled the fastest pace of contraction since the depths of the recession in October 2009.

This reflected the fastest decline in commercial building work in three years and a sharp decrease in civil engineering activity. There was though a marginal expansion in residential building for the first time since May 2012.

Lower levels of new work have been recorded in each month since last June, and there was a decline in purchasing by construction companies.

Funding for Lending:

The Funding for Lending Scheme handed £9.5bn to banks and building societies in the fourth quarter of 2012, the Bank of England has said.

It reduces funding costs for banks and building societies, with the intention of allowing them in turn to cut the price of new loans and increase their lending.

December’s funding took the total drawn from the scheme to date to £13.8bn, but net lending by the 39 financial institutions in the scheme was £2.4bn lower over the quarter.

The bank said the fourth quarter of any year was traditionally quiet for lending and expected a gradual pick this year.

It said the funding would “take time for this to feed through to lending volumes, given the typical lags involved in the loan application, approval and drawdown process”. 

Supplier delivery times lengthened again in February, continuing a period of worsening vendor performance that began two and a half years ago.

Index author Tim Moore called the figures “undoubtedly a dismal set of data for the UK construction sector”.

He added: “With total output falling at the steepest pace for over three years, the latest survey is confirmation hat January’s construction decline was not entirely snow-related.

“Downward pressure on client budgets, alongside subdued public sector spending, again led to lower output levels and reduced new order inflows”

CIPS chief executive David Noble said there was “barely a crumb of comfort in this month’s figures for the construction industry”.

One piece of positive news was that construction companies anticipate an expansion of business activity over the coming year, with this feeling at its strongest since last April.

The Civil Engineering Contractors Association said that findings should give chancellor George Osborne serious cause for concern.

External affairs director Alasdair Reisner said: “The construction sector is fundamental to the government’s recovery strategy, and yet it currently languishing in an anaemic condition, showing only weak or negative growth.

“If the chancellor is to achieve his goal of kick-starting growth through infrastructure provision, it is vital that he takes the necessary steps to increase workloads and unblock smaller local infrastructure projects without delay.”

CECA urged Mr Osborne to establish a stable and competitive financial sector, and provide government support to industry in unlocking the thousands of local infrastructure projects that are currently struggling to move from planning to delivery.

Scottish Building Federation executive director Michael Levack said: “These new figures give the clearest indication yet of the need for a change of economic strategy when the chancellor presents his Budget in a fortnight’s time.”




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