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Construction growth slows as fears increase for year ahead

The pace of growth in construction work has fallen for three consecutive months, according to figures published today.

The Markit/CIPS Construction Purchasing Managers’ Index said activity had fallen from 56.7 in March, to 55.8 in April and 54.4 in May.

Any reading over 50 in the index signifies growth. The research is based on responses to a questionnaire sent to purchasing staff in 170 construction firms.

Growth in business activity in May prompted construction companies to increase their staff numbers for the third month in a row.

But slower new business growth, which firms attributed to fears for the state of the economy, led to the lowest level of positivity about the outlook for the year ahead since October 2011.

Tim Moore, senior economist at Markit said: “While still in positive territory, the month-on-month fall in business confidence was the greatest since June 2010, which was when plans for the autumn government spending review were first announced. This reassessment of the year-ahead outlook represents worries within the construction sector that weakening economic conditions could leave firms running on empty again once existing projects have come to completion.”

David Noble, chief executive officer at the Chartered Institute of Purchasing & Supply, said: “Reports of the UK’s return to recession appear to have delivered a blow to general confidence in construction, with this month’s PMI posing some big questions for the sector in the coming months.

“Although still in growth, the marked weakening in new orders since March and April, particularly for larger civil engineering projects, suggests that the recent ramping up of employment in response to work-in-hand may not be sustained.

“With purchasing activity softening in response to weaker demand, suppliers of raw materials will be tempted to keep ever smaller inventories, meaning the response to any future pick-up in demand may be sluggish.”

Noble Francis, economics director of the Construction Products Association, said the survey’s reading of 17 consecutive months of growth was out of step with other construction data. “They have said growth is slowing but even that I think is optimistic. If you look at construction most parts apart from private housing or infrastructure are falling or stagnating.”

The Office of National Statistics’s monthly construction output figures fell 4.36 per cent between March 2011 and 2012.

But Markit senior economist Rob Dobson, said the firm stood by its data and that it was possible that the ONS data was overly pessimistic. “I think the rate of contraction in the ONS [data] maybe more pessimistic than is really the case. On the ONS data for construction there have been quite large revisions of data in the past,” he said.

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