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Construction sector growth eased off since March but still in recovery
Published:  03 May, 2012

Despite recent reports that the construction sector is to be blamed for the return into recession, the Purchasing Managers' Index (PMI) for April has reported continued recovery.

UK Construction companies indicated a continued recovery in business activity and new orders in April, mainly led by work on commercial projects.

This contributed to employment growth for the second month running, and improved confidence in the 12-month outlook.

The seasonally adjusted Markit/CIPS UK Construction (PMI) signalled that activity grew at a slower rate than the 21-month high seen in March, when good weather helped boost activity levels.

However, at 55.8, down from 56.7 in the previous month, the latest index was still comfortably above the 50.0 no-change mark.

“The upturn in businesses’ expectations on a year-ahead horizon represented something of an antidote to the news that the construction sector double-dipped in the first quarter,” said senior economist at Markit, Tim Moore.

He added however, that since the 2010 government spending review, the level of confidence in the construction industry has consistently run below the average seen in the decade before the financial crisis, suggesting there has been a widespread loss of optimism since the deficit-fighting austerity measures were first announced.

“The worry is that the sector may suffer from a lack of large-scale new projects once current undertakings such as the Olympics are completed.” He said.

The strongest expansion was again seen in the commercial sector, followed by civil engineering.

In contrast, growth of residential building remained only marginal and, despite picking up since March, was much weaker than the overall UK construction sector trend.

Improving new order books underpinned the April expansion of total construction activity in April, albeit at a slower rate than the four-and-a-half year high registered in March.

Anecdotal evidence from survey respondents suggested that improved confidence among clients had supported the latest rise in new contracts.

April data pointed to a moderate increase in construction staffing levels, extending the current period of growth to two months.

This reflected a combination of rising workloads and resilient confidence in the outlook for business activity over the next 12 months.

In terms of purchasing activity, UK construction companies reported another solid increase in their purchasing activity in April, extending the current growth period to 16 months.

Use of subcontractors was largely unchanged compared to March, though rates charged fell for the first time in four months, signalling increased competition among subcontractors.

“Despite good news for order books and a rise in purchasing activity since the start of the year, it’s worth remembering that there is still a long way to go to match the expectations of growth seen before the 2010 spending review,” added David Noble, chief executive officer at the Chartered Institute of Purchasing & Supply.