Construction slows as sector struggles with price rises and low orders

By HARRY GLASS
Updated: 07:40 EST, 2 September 2011

A worrying slowdown in the construction industry today stoked fears about the health of the UK's economy.

New orders fell by 16.3 per cent in the second quarter of this year, to their lowest level since 1980, the Office for National Statistics revealed.

And the sector grew in August at its slowest pace yet this year as the housing sector continued to contract. Confidence also hit its lowest level for seven months, according to a Markit/CIPS survey.

Spending cuts: Orders for both public and private housing were down dramatically

The surveys suggest the sector could be running out of momentum after strong growth in recent months. It grew by 0.5 per cent in the second quarter,  dragged downwards amid Government spending cuts and the general global economic slowdown.

The manufacturing sector is also suffering a slowdown, while the powerhouse services sector is still in growth but is being squeezed as disposable income is hit by inflation.

Howard Archer, economist at IHS Global Insight, said the latest ONS construction data - which showed orders for new public and private housing fell 32 per cent and 21 per cent compared to a year ago - was 'horrible' and it 'bodes ill for output prospects in the near term at least'.

He said: 'The construction sector faces an extremely challenging environment, which threatens to weigh down appreciably on activity over the coming months.'

Meanwhile, the Markit/CIPS survey, where a reading above 50 indicates growth, showed that the sector slowed to 52.6 in August, down from 53.5 in the previous month. New business increased at its mildest rate for seven months.

The housing sector posted another decline in activity, while an improved performance from commercial industry was outweighed by a weaker rise in civil engineering work. The construction industry continued to battle with rising prices, which increased at their fastest rate for three months, and also made more job cuts.

CIPS chief executive David Noble said: 'Reality is continuing to bite in the UK construction sector, as worries over wider economic conditions contribute to a slower rate of output growth.

'However, the proof of the pudding will be whether the reported increase in competition for new orders, plus increases in fuel and commodity prices, will subdue confidence going forward.

'Though overall activity is still in growth territory, there may be some question about whether this will continue for much longer.'