Analysts stunned by growth in construction

The headline activity index of the Markit/CIPS survey of purchasing managers came in at 56.4 in March – after hitting 56.5 in February. Analysts had forecast a steeper fall, to 54.9.

Construction makes up only six per cent of British economic output, but has recently had a strong correlation with overall Gross Domestic Product growth.

Evidence that the sector is continuing to grow strongly reassured investors after the publication of a disappointing manufacturing survey.

Sarah Ledger, an economist at Markit, said: “UK construction companies reported a strong end to the first quarter.

“The data adds to the generally positive flow of data that has been seen since the new year, adding to evidence that the economy rebounded strongly from the surprise contraction of GDP in the final quarter of last year.”

However, there are signs of accelerating price pressures with the rate of cost inflation hitting its highest in 31 months.

The price of fuel, oil and steel were the biggest culprits.

Sentiment, while strong in historic terms, weakened for a second consecutive month, with firms citing looming government spending cuts.

Howard Archer, economist at IHS Global Insight, said: “Construction activity held up pretty well in March, thereby extending the recovery from the fourth-quarter contraction in activity that was significantly influenced by December’s severe weather, which hit the sector hard.

“Indeed, the signs are that construction output saw decent expansion in the first quarter after contracting 2.3 per cent quarter-on-quarter in the fourth quarter of 2010.

“This is obviously welcome news for overall GDP growth prospects in the first quarter, although it needs to be borne in mind that the construction sector accounts for only 6.3 per cent of GDP.”