Weak construction data fuels fears for UK economy

Published 04th May 2011

Monthly CIPS/Markit construction PMI survey shows construction sector growing more slowly than expected


The latest health check of Britain's construction industry has fuelled fears that the UK economy is flagging, with the sector growing more slowly than expected last month.

The monthly CIPS/Markit survey of purchasing managers showed its measure of activity dropped to 53.3 points in April, from 56.4 in March, and closer to the 50-point mark that separates expansion from contraction. The slowdown came a day after similar data showed activity in Britain's manufacturing sector stalling.

The construction PMI data showed that the housing sub-sector suffered shrinking output in April. And firms across the sector continue to shed staff, the 10th month in a row that the construction workforce has fallen.

The pound fell to its lowest level against the euro in more than 13 months after the data was released, with €1 worth 90.28p.

However, analysts were encouraged that construction output continued to expand in April.

Markit economist Gemma Wallace believes the PMI data shows that the construction industry has performed better than official estimates. The Office for National Statistics's preliminary reading of GDP in the first quarter of 2011 stated that the construction sector slumped by 4.7% between January and March – dragging overall growth down to just 0.5% – but the PMI surveys suggest the sector has been growing since January.

"The Markit/CIPS Construction PMI suggests a less dismal start to the year than official figures are indicating, but the sector is by no means a picture of health," said Wallace. "The survey pointed to a modest rebound in the first quarter from the weather-related weakness at the end of last year, contrasting with the huge 4.7% decline in output signalled by government statistics."

David Noble, the CIPS chief executive, warned that construction firms were suffering from low activity levels in the housing market, cuts to government spending, and more expensive raw materials.

City economists said the PMI data painted a mixed picture, with slowing output suggesting a bleaker outlook for the sector in the months ahead.

"Although the index points to increased building activity, overall output in the sector is still some way below the pre-recession peak and the current recovery should be viewed as catch-up growth," said Tim Ohlenburg, senior economist at the CEBR.

Howard Archer of IHS Global Insight said the survey "added to growth concerns" but agreed that the ONS probably overestimated the extent of the slowdown in the first quarter of 2011.

"We believe that there is a strong possibility that the first quarter 2011 construction output figure will eventually be revised up significantly and that the construction sector will grow in the second quarter," said Archer. "The construction sector clearly faces a challenging environment, which is likely to limit activity over the coming months."

Source: ' Guardian '

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