Construction may be ‘over the worst’ as rate of decline eases

The sector experienced its slowest rate of contraction in six months of falling activity, according to the latest Markit/CIPS purchasing managers’ index.

It showed a headline reading of 49.4 for April – with 50 the level that separates growth from contraction.

This was up on March’s figure of 47.2.

The report comes a day after figures for manufacturing offered a “glimmer of hope” for a turnaround in fortunes, and a week after official gross domestic product (GDP) figures showed the UK economy had avoided a ‘triple dip’ recession.

Construction is still well below its pre-crisis peak and yesterday’s figures showed that commercial activity dropped for the third month running while work on civil engineering projects “decreased markedly”, hit by public sector cutbacks.

But Government initiatives to boost the economy may have helped housebuilding, which rose marginally, and showed its strongest lift since April last year.

It comes after the Treasury and the Bank of England launched its Funding for Lending scheme last year, which aimed to loosen borrowing conditions for homebuyers as well as businesses.

A Help to Buy scheme aimed at those struggling to raise a deposit has also been launched recently and a mortgage guarantee scheme is in the pipeline.

These latest figures revealed that overall construction showed a slight decrease in new orders though employment was stable.

While its current period of decline was the longest since the depths of recession in 2008/09, April’s drop was “only marginal” and the slowest since October.

Tim Moore, senior economist at Markit, said UK construction was “closer to stabilisation than at any time since October 2012” though the slower decrease in output was partly a reflection of “catch-up” after severe weather hit activity early in the year.

Some firms cited a boost in output from winning contracts on new housebuilding schemes, he said.

But he added: “Civil engineering remained the weakest construction sub-category, with public sector inflows scarce outside of big ticket infrastructure pro- jects.”

He said the figures showed construction would act as less of a drag on overall GDP in the second quarter – after the sector fell by 2.5 per cent according to official data for the first three months.

David Noble, chief executive at the Chartered Institute of Purchasing and Supply, said: “Government efforts to boost the economy may be filtering through as housing activity has risen in every month since February, and experienced its strongest performance for a year in April.

“Compared to the end of last year, business confidence is picking up, indicating a robust degree of optimism for the year to come.”

Howard Archer, chief UK economist at IHS Global Insight, said: “While still weak, an improved April purchasing managers’ construction survey does at least offer hope that the sector could be past the worst.”

Taken together with the limited signs of improvement from the manufacturing survey on Wednesday, there were “encouraging signs that the UK economy may be establishing a slightly firmer footing”, he added.

Mr Archer added: “While the construction sector only accounts for 6.8 per cent of total UK output, the extent of its weakness means that it was a major drag on GDP in 2012 and then held back growth in the first quarter of 2013.

“Construction output contracted 8.1 per cent overall in 2012, with the result that it knocked 0.6 percentage points off GDP growth which was limited to 0.3 per cent.

“Construction output then contracted by 2.5 per cent quarter-on-quarter in the first quarter of 2013, which knocked 0.2 percentage points off GDP growth.”

Jonathan Oxley, the Institute of Directors’ West Yorkshire chairman, said: “There is some encouragement in this news, from a sector that has been one of the hardest hit in the downturn.

“There is a growing consensus that construction activity has to be kick-started as one of the engines for recovery.

“If we can achieve a balance of stimulus from Government, and returning confidence in the private sector, we will see this index back in positive territory.”

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