Construction sector contracts in August as new orders shrink

Tuesday, 04 September 2012 08:41

By Ben Salisbury

Activity in the UK construction sector declined in August, down from a reading of 50.9 to 49.0. Any reading below 50.0 indicates contraction in the sector.

After disastrous figures in June, where Markit’s data pointed to the biggest monthly fall in over three years when the PM index fell from 54.4 in May to 48.2 in June, the sector grew in July, up to 50.9.

Today’s figures add to the bleak state of the UK economy and makes GDP growth in the third quarter increasingly unlikely.

David Noble, Chief Executive Officer at the Chartered Institute of Purchasing & Supply, said: “This is dire news for the construction sector which saw its fastest drop in new orders for over three years.”

Markit and the Chartered Institute of Purchase & Supply (CIPS) said that there had been a decline in new orders, commercial activity fell for the first time in two and a half years and companies’ outlook for the future fell to its most pessimistic for ten months.

Tim Moore, Senior Economist at Markit, said: “August data reaffirms that UK construction firms are suffering a prolonged downturn in new work and there is little evidence to suggest an imminent rebound in output levels.”

The construction sector shrank heavily during the second quarter of 2012, though these figures were later revised to show that the sector contracted by 3.9 per cent rather than 5.2 per cent over the period.

However, at the same time it revised up the contraction in the sector in the first three months of 2012, from 4.9 per cent to 5.3 per cent.

Now that the London Olympic Games has ended there is likely to be less new projects for the sector. However, the government, in a bid to inject some life in the economy has hinted that it will help fund some new housing and infrastructure problems over the rest of the year that could benefit the construction sector.

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