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New orders fall at steepest rate since April 2009

New orders fell at the steepest rate in August since April 2009 as construction suffered a ‘double-decline’ in both commercial and residential activity, it was said today.

The situation is likely to worsen unless there is “a rather implausible double-digit growth surge in each of the final two quarters”, according to the latest Markit and Chartered Institute of Purchasing & Supply Construction Purchasing Managers’ index.

Their latest research shows that output fell in August, with commercial dropping for the first time in 36 months.

Despite house builders reporting increasing profits, the index said residential building activity was the worst performing category of construction in August.

There was also a ‘solid reduction in civil engineering activity’.

The index - based on data compiled from monthly replies to questionnaires sent to purchasing executives in over 170 construction - also says construction firms are less optimistic about the business outlook since October 2011.

At 49.0, the index is down from 50.9 in July. It means the seasonally adjusted index was below the 50.0 no-change mark and represents the second-lowest since February 2010.

David Noble, chief executive at CIPS, said a double-decline in commercial and residential is ‘particularly worrying’.

He said: “This is dire news for the construction sector which saw its fastest drop in new orders for over three years. Undoubtedly the Government will come under more pressure to help the sector and implement Sir Adrian Montague’s proposals to kick-start house building, when it responds later this year.”

Tim Moore, senior economist at Markit and author of the Markit/CIPS Construction PMI, said this year’s performance will not return to 2011 levels of output unless there is ‘a rather implausible double-digit growth surge in each of the final two quarters’.

“Therefore, an important issue is simply whether a floor has yet been established, and the survey evidence at this stage seems to suggest it hasn’t.”

He added: “August data reaffirms that UK construction firms are suffering a prolonged downturn in new work and there is little evidence to suggest an imminent rebound in output levels.”

Anecdotal evidence from survey respondents attributed the drop in construction output to ongoing weak demand across the sector. UK construction companies indicated that their business confidence weakened for the fourth time in the past five months during August.

A marked decline in construction workloads meant that construction companies generally had sufficient staffing levels to meet existing demand, meaning stagnated employment levels in August.

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