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Growth of UK construction sector weakened, led by slowdown in residential construction, says new report

August data signalled a further expansion of the UK construction sector, with the seasonally adjusted Markit/CIPS Construction Purchasing Managers' Index posting 52.1. However, this was lower than July's reading of 54.1, signalling that growth slowed for a third successive month from the recent high recorded in May.

A further increase in new work intakes supported the latest rise in activity. However, growth in both new orders and output failed to boost employment and indeed jobs continued to be cut. Meanwhile, confidence over future business expectations improved, although concerns over public sector spending cuts remained.

"PMI data indicated that the UK construction sector continued to expand in August," explains Sarah Ledger, Economist at Markit and author of the UK Construction PMI. "However, overall activity growth lost further momentum, with the headline index over six points lower than May's recent high, led by a marked slowdown in residential construction growth.

"Although higher than in July, the degree of positive sentiment amongst UK constructors remained subdued in the context of historical data, as concerns over public sector spending cuts persisted. As a result, staff numbers fell for the second successive month, with companies displaying caution with regard to hiring."

Commenting on the report, David Noble, Chief Executive Officer at the Chartered Institute of Purchasing & Supply, said:

"Those who are looking for signs of a slowdown will find plenty to worry about in this month's construction PMI. The most disturbing is the marked slowdown in the residential sector as this is where much of the recent sector growth has come from. The slight increase in public sector activity disguises continuing uncertainty about the scale of spending cuts which we have yet to experience. Employment levels falling for a second successive month will cause deep concern, not least for the ripple effects they may have on other sectors.

"For the more optimistic amongst us, however, it still looks like we are entering a period of low growth rather than another recession but the jury's still out. Though this month's figures are disappointing, we should remember that overall the sector is still growing.

"The housing market is key to recovery in the longer term but now appears to be in a transition phase.There is still a job to be done in balancing stricter criteria for mortgage lending with demand for new homes, if new projects are to get off the ground and reverse the slump in the residential sub-sector."

T: +44 1780 761576

E: trudy.salandiak@cips.org

3rd September 2010




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