'Sick man' label for construction

Sep 3 2009 by Iain Laing, The Journal

THE struggling construction sector has been labelled the "sick man of the UK economy" despite its pace of decline easing in August.

The Chartered Institute of Purchasing and Supply’s (CIPS) activity index registered 47.7 during the month – signalling industry contraction, but at the slowest rate in 18 months.

Easing conditions in house building and commercial activity were, however, offset by a worse-than-expected fall in civil engineering work, CIPS said.

Chief executive David Noble said: “Though August saw a reduction in the rate of deterioration, it is still the sick man of the UK economy. Far from seeing signs of a return to growth, the sector remains stuck in an unprecedented 18-month period of contraction.”

Job levels fell sharply over the month as firms continued to cut roles to meet the slump in demand, while input costs fell as the sector reduced stocks instead of buying new materials.

But the rate of decline in new orders also eased markedly during August, while optimism among businesses was also high, CIPS said.

IHS Global Insight economist Howard Archer said the signs of stabilisation in the survey after previous severe declines raised the chances of the UK returning to growth in the third quarter.

Construction output fell 2.2% in the second quarter after a 6.9% decline in the first three months of 2009.

“While the purchasing managers’ survey still points to contracting activity in the sector, it nevertheless indicates that construction output should be less of a drag on the overall economy in the third quarter,” Mr Archer said.