Slowdown fears hit construction sector

The Chartered Institute of Purchasing and Supply's (CIPS) latest activity index, where a score over 50 signals growth, fell to 52.1 from 54.1 in July – the third monthly fall in a row.

Housebuilding saw much weaker growth than commercial construction and civil engineering, fuelling fears that the sector's strong rebound since the recession is losing steam. Construction jobs also fell for the second successive month.

CIPS chief executive David Noble forecast low growth rather than a return to recession, but said: "Those looking for signs of a slowdown will find plenty to worry about.

"The most disturbing (sign) is the marked slowdown in the residential sector as this is where much of the recent sector growth has come from."

Barclays Capital chief economist Simon Hayes said the disappointing figures would heighten worries "the housing market is entering a period of stagnation, if not outright contraction".

Record-breaking gains in the construction sector during the second quarter of 2010 – when the industry expanded at its quickest rate since 1982 – helped drive the overall economy forward by 1.2 per cent between April and June, the fastest pace since 2001.

But the latest figures from building society Nationwide yesterday showed a 0.9 per cent fall in property prices during August after a dip in July – the first time prices have dropped for two consecutive months since the depths of recession in February last year.

Yesterday's CIPS survey showed that civil engineering – where public sector spending is typically focused – registered the strongest growth, although this could be hit by a deficit crackdown. Mr Hayes added: "On the face of it, this sectoral configuration does not bode well for future construction output, in our view.

"Cuts in public investment seem likely to drive the civil engineering index lower over the coming months and we see few reasons to be upbeat about housing market prospects."

Building contractors are more confident the gradually improving economic outlook will boost workloads, although the survey also showed new order growth slowing for the third month in a row.