Construction growth slows down in July

CONSTRUCTION activity in the UK dropped sharply to a four-month low last month, according to a leading survey published yesterday.

The Markit/CIPS purchasing managers’ index for the construction sector fell to 54.1 in July from 58.4 in June, highlighting concerns that activity in the sector may have peaked. However, this is the fifth consecutive month that the PMI has remained above the 50 level that separates expansion from contraction.

UK construction companies reported a further rise in new business during July but there was a four-point drop in the balance measuring construction firms’ business expectations, which came on the heels of a 10-point fall in June.

This is likely to reflect their perception of lower demand stemming from fiscal austerity measures announced in June’s Budget, said Varun Bhabha at Barclays Capital, who added: “This fall underscores the risk of a sharp weakening in the total activity balance in the coming months.”

Howard Archer at IHS Global Insight said: “While the construction sector’s recovery still appears to be intact after extended, deep recession, the loss of momentum evident in the July purchasing managers’ survey highlights the fact that the sector continues to face a very challenging environment. This will likely cause the recovery to be gradual overall and bumpy.”

He added: “In particular, the consruction sector is likely to be hit significantly by the coalition government’s need to substantially rein in public spending for an extended period as this is clearly going to hit expenditure on infrastructure and public buildings.”

The PMI indicated that there was slower expansion in July in house building and commercial activity, while civil engineering grew only marginally last month.