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October construction output rises marginally

Activity remains weak as new contracts and employment levels fall

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The UK’s construction output rose marginally on the back of civil engineering contracts but new work and employment in the sector continued to shrink.

Markit/CIPS Construction Purchasing Managers' Index (PMI), published on Friday, rose to 50.9 in October from 49.5 in September. A level of above 50 is indicative of growth. However, the survey report noted that new orders fell for a fifth successive month.

Both residential and commercial construction activity continued to decline for the fifth month in a row. It also added that employers in the construction sector cut jobs at the fastest rate since August 2011. Economists of all stripes urged caution over the latest construction PMI level.

Markit economist Tim Moore said the bigger picture remained bleak."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.

CIPS chief executive David Noble also expressed pessimism about the future.

"Despite marginal growth in October, the prospects for the construction sector are bleak as firms prepare for the worst…"There is contagion right along the supply chain with rising fuel and energy costs and lengthening delivery times ensuring there is little hope of respite in the immediate future. All of this compounds the imminent threat of budget cuts in 2013," he said

Howard Archer, chief UK economist at IHS Global Insight, felt that even if the construction sector can avoid further contraction in the fourth quarter, it certainly looks unrealistic to expect it to materially contribute to economic growth.

“With the corresponding manufacturing sector pointing to weakness in October, any fourth quarter growth be heavily reliant on on-going expansion in the dominant services sector. It will also likely need reasonably decent consumer spending, which at least appeared to occur in October according to the CBI’s distributive trades survey,” he told CFOWorld.

The October construction PMI survey maintains the case for government initiatives to try and lift infrastructure activity and house-building, Archer added. “There is significant pressure on the Chancellor to find more money for infrastructure investment in his Autumn statement in December,” he concluded.


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