Construction creeps into growth but outlook bleak

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THE construction sector eked out growth in October, but new work and employment shrank and firms remained cautious about future business, a survey showed yesterday.

The Markit/CIPS Construction Purchasing Managers’ Index (PMI) rose to 50.9 from 49.5 in September, just above the 50 line that separates growth from contraction. That is the highest reading since July and better than the forecast 49.1.

However, new orders fell for the fifth straight month – the longest period of decline since the 2008-2009 recession – and firms reduced headcount at the fastest pace since August 2011.

“The bigger picture remains bleak,” said Tim Moore, senior economist at Markit, which compiles the survey.

“The year-ahead business outlook was still relatively subdued during October, as survey respondents cited weak spending patterns and squeezed budgets among clients,” he added.

Input price inflation sped up in October compared to September, mostly driven by higher fuel and energy costs.

Within the sector, only civil engineering output rose, with residential and commercial work declining, Markit said.

Still, earlier data from construction industry analysts Glenigan raised hopes that the sector might pick up.

The value of building projects started between August and October was broadly flat compared to a year ago, but activity would have been far worse had it not been for a 58 per cent jump in private housing projects, the analysts said.

They added the Bank of England’s Funding for Lending Scheme, in which it provides cheap funding to banks if they keep up lending to households and businesses, was beginning to have some positive impact on credit conditions and house-builders started new projects in anticipation of more sales next year.

The sector employs around 150,000 people in Yorkshire.

Meanwhile, there were some glimmers of hope on the horizon yesterday when a leading think tank predicted that Britain’s economy will return to modest growth in 2013 after flatlining this year.

The National Institute for Economic and Social Research (NIESR) forecast GDP would dip this year by 0.1 per cent, up from its August forecast of a 0.5 per cent contraction, after surprisingly strong expansion in the third quarter.

However, NIESR revised down its 2013 growth forecast to 1.1 per cent from 1.3 per cent, due to a weaker global outlook.

“Risks to the UK economy are dominated by the external environment,” it said. “Developments in the euro area are most important, both because of trade and financial sector linkages.”

NIESR economist Simon Kirby said the think-tank did not expect more quantitative easing from the Bank of England.