Buyers report slow down in construction growth

Grant Prior 12 years ago
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Construction buyers reported a slow down in output during May as growth rates continued to fall from a two-year high seen in March.

The Markit/CIPS Construction Purchasing Managers’ Index for May dipped to 54.4 from 55.8 in April.

The survey described growth as “solid” despite the pace of expansion dropping to the slowest in three months.

Any figure above 50 on the sentiment survey represents an increase in output.

David Noble, Chief Executive Officer at the Chartered Institute of Purchasing & Supply, said: “Reports of the UK’s return to recession appear to have delivered a blow to general confidence in construction, with this month’s PMI posing some big questions for the sector in the coming months.

“Although still in growth, the marked weakening in new orders since March and April, particularly for larger civil engineering projects, suggests that the recent ramping up of employment in response to work-in-hand may not be sustained.

“With purchasing activity softening in response to weaker demand, suppliers of raw materials will be tempted to keep ever smaller inventories, meaning the response to any future pick-up in demand may be sluggish.

“On a more positive note, the fall in inflation is allowing construction companies to price more competitively to win new contracts, but could be a double-edged sword as suppliers continue to see their margins squeezed.”

Tim Moore, Senior Economist at Markit said: “May’s survey highlighted a big fall-back in new business growth following the large spurt of order gains seen during the spring.

“A softer trend in new projects set the tone for the construction sector in May, with output growth hitting a three-month low and business confidence dropping sharply since April.

“While still in positive territory, the month-on-month fall in business confidence was the greatest since June 2010, which was when plans for the autumn government spending review were first announced.

“This reassessment of the year-ahead outlook represents worries within the construction sector that weakening economic conditions could leave firms running on empty again once existing projects have come to completion.”

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