Construction grows in March but fears over future loom

Grant Prior 11 years ago
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Construction continued to grow strongly in March according to the latest positive set of figures from purchasing professionals which recorded higher growth than expected by industry experts.

The Markit/CIPS UK Construction PMI index for March posted 56.4 where anything above 50 represents growth.

The figure is marginally down on February’s eight-month high of 56.5 but well ahead of the average prediction of City analysts who were expecting a reading of 54.8.

David Noble, Chief Executive Officer at the Chartered Institute of Purchasing & Supply, said: “On the surface there wasn’t much of a change in the construction sector in March, but there is plenty to put businesses on edge about their future prospects.

“Fractionally weaker levels of activity and a more noticeable slowdown in new orders contributed to an easing of business confidence, which remains at historically low levels.

“The spectre of government spending cuts is causing the greatest concern, particularly as government stimulus starts to crumble. We may also be at the tail-end of temporarily higher activity levels seen after Q4’s weather disruption.

“Similarly, although March saw the third monthly growth in a row of residential construction activity and staff reduction was it’s weakest in many months; other indicators showing continued volatility in house prices and poorer consumer confidence mean there is still a great deal of uncertainty.”

Sarah Ledger, Economist at Markit and author of the UK Construction PMI said: “UK construction companies reported a strong end to the first quarter, with activity rising at a similar pace to the eight-month high recorded in February.

“The data therefore add to the generally positive flow of data that have 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, whether the resurgent growth will prove long-lasting remains in doubt.

“Worryingly, new order growth slowed more notably than that of activity in March, pointing to a slowdown in activity over the coming months, especially if the pattern is sustained.

“Mirroring this, confidence amongst constructors remained subdued, slipping to a three-month low, with many companies still wary about the possible impacts from public spending cuts.”

Simon Rubinsohn, RICS Chief Economist, said: “The March PMI for the construction sector suggests that fears about the impact on activity of forthcoming public spending cuts may be exaggerated.

“Official data for January was disappointing, after snow affected the December reading, but this was a provisional estimate and is often subject to revision.

“Significantly, the closely watched construction PMI report now indicates that the sector has increased output throughout the first quarter of the year and will contribute positively to the GDP number.

“We are not at this stage minded to change our forecast that construction output will be little changed during the whole of 2011, with doubts lingering in our minds as to the ability of private sector demand to offset the retreat of the public sector.

“But today’s PMI report does suggest the sentiment in the sector may be a little more upbeat than is generally appreciated.”

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