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Spring is in the air…

It is spring time, the sun has been out on the odd occasion and one senses that there is a just a touch more optimism around.

For example, the closely watched purchasing managers’ surveys published by CIPS suggest that sentiment in both the manufacturing and service sectors has edged up a little.

However the indices are still giving readings consistent with a contracting economy.

Meanwhile, the housing market survey produced by the RICS has also taken a turn for the better with new buyer enquiries (for property) rising for the fifth consecutive month and the stock to sales ratio, widely viewed as a lead indicator of house prices, beginning to stabilise.

Significantly, this slightly better mindset is also evident in the construction sector with the March EU survey reporting small improvements in a number of key sentiment indicators.

A net balance of 58 per cent of respondents suggested things had got worse last month.

Now that is hardly something to get the bunting out for but it is all about comparisons.

In February, the equivalent reading was 65 per cent while in January it was 62 per cent.

There was a broadly similar improvement in order books and employment expectations; put another way, they both got less bad.

That said, the hard data both for the wider economy and more specifically the construction sector are still pretty gloomy.

The economy has so far contracted by just over 2 per cent and few commentators believe that the peak to trough decline will be anything less than double this figure.

Meanwhile new construction orders slipped to a fresh low in February of £2.1 billion - measured in constant prices.

To give this number some context, it is worth noting that in February 2008 orders amounted to £3.9 billion.

The latest drop in orders was fuelled by further weakness in private housing as well as a fall in the infrastructure area.

However, it may be that measures put in place to help support the construction sector will soon begin to feed through in the form of hard numbers.

Most notably, the infrastructure finance unit under the auspices of HM Treasury has committed its first sum of money - £120 million - to enable the long delayed waste and recycling project in Greater Manchester to get off the ground.

In aggregate, the unit is expected to provide at least £1 billion, and possibly up to £2 billion, to support PFI projects struggling to raise the requisite finance from private lenders.

In addition, the benefits of the Government’s announcement in the Pre Budget Report that it would bring forward capital spending from future years should gradually become more visible.

None of this is to pretend that the pain being suffered by many businesses in the construction sector will ease materially over the next few months; unfortunately it won’t.

The sheer scale of the collapse in housebuilding over the past year and the increasing pressure on commercial development following a 40 per cent drop in values, according to the Investment Property Databank, will overwhelm the remedial steps taken by the Government.

Simon Rubinsohn is chief economist of the Royal Institute of Chartered Surveyors

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