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Market activity remains strong but job losses hit five-month high

The commercial sector continued to perform strongly in June, however construction job losses hit a five month high and concerns were raised over future spending.

The construction Purchasing Managers’ Index survey, produced by Markit and the Chartered Institute of Purchasing and Supply, showed a slight decline in activity from May, with the index falling from 54 to 53.6.

While market activity remained strong, job losses hit a five-month high and UK contractors expressed concern about future public and private spending.

CIPS chief executive David Noble said: “Growth in the UK construction sector was broadly unchanged in June, despite reaching a milestone sixth month of expansion.

“Optimism about increases in activity was stifled by concern over the overall health of the economy and the level of both public and private sector spending.”

The index also found:

Sub-contractor usage declined sharply and, while availability increased only modestly, rates charged by sub-contractors fell for the first time since January.

Of the three broad areas of construction activity monitored by the survey, both commercial and civil engineering recorded increases in output.

Although growth of commercial construction slowed, it remained the strongest performing sub-sector, while the expansion in civil engineering was in contrast to May’s contraction.

House building was reported to be lower during June, the second time in three months that activity in this sector has fallen.

New orders received by UK construction companies increased for a sixteenth successive month.

However, the latest rise was the weakest since January. Anecdotal evidence suggested that a fall in the conversion of bids to contract wins had resulted in slower growth of new business.

Markit economist, Sarah Bingham said: “Commercial construction held up well, suggesting that companies continue to invest in new built assets, and civil engineering even showed a nice rebound from a lull seen in May.

“The worry is that the level of business confidence has fallen to a six-month low in the sector, which suggests that companies are expecting growth to weaken over the next twelve months. That is perhaps not altogether surprising given a marked easing in the rate of expansion of new business inflows in June.”

Input cost inflation remained elevated in June, despite slowing sharply since May. Higher raw material and fuel prices were the main drivers of inflation.

UK managing director for project and construction consultant Turner & Townsend, Steve McGuckin said the figures showed that confidence in the market was still uncertain.

He said: “In investment terms, domestic confidence has improved in the past year but is still far from robust. The most bullish investors are primarily those from overseas. 

“Many foreign sovereign wealth funds still see London as a good long term investment. But their focus is entirely within the M25. Further afield does not hold the same appeal.” 

He added: “So for now the UK construction market remains intensely cautious.  May’s figures were strong enough, but such anaemic performance in June is scarcely cause for relief.”

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