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Construction industry output dragged down by housebuilding drop-off

Output in Britain's construction industry eased back in March as the sector was dogged by a slowdown in housebuilding.

The closely watched Markit/CIPS UK Construction purchasing managers' index (PMI) fell to 52.2 last month, down from 52.5 in February and below economists' expectations of 52.5.

A reading above 50 indicates growth.

A drop-off in housebuilding was the main drag on the sector, but was partially offset by a rebound in commercial and civil engineering activity, the report said.

It comes as separate PMI figures on Monday showed manufacturing output eked out its weakest growth in eight months for March following a slowdown in consumer goods production.

Tim Moore, senior economist at IHS Markit, said there were signs that the construction sector was falling victim to a cooling off of the housing market.

He said: "Civil engineering projects were the construction sector's main growth engine in March, driven by rising infrastructure spending and a strong pipeline of new work throughout the UK.

"March data showed a slight rebound in commercial construction activity. Survey respondents noted that the resilient economic backdrop and receding Brexit-related anxieties have helped to stabilise client demand after the disruption to development projects last summer."

Following the PMI reading, sterling was down 0.4% versus the US dollar at 1.243 and 0.3% lower against the euro at 1.166.

The report found that soaring input costs sparked by the Brexit-hit pound remained at high levels last month, but had dropped back from an eight-and-a-half-year pinnacle in January.

It said construction firms were feeling more sanguine about the future, fuelled by diminishing Br exit anxiety and robust UK economic data.

Around half the surveyed companies are pencilling in a jump in business activity for the year ahead, with 9% predicting a decline.

But while employment levels continued to expand at a solid rate, the pace of employment growth slipped to a three-month low.

Duncan Brock, director of customer r elationships at the Chartered Institute of Procurement & Supply (CIPS), said: "Where the housing sector acted as the main engine of growth over the last four years, this month it was slower and stuttering, while overall purchasing activity in the construction sector was disappointingly tame, shackled by a lack of new orders and rising costs.

"This downbeat effect took a small bite out of any strong rises in employment levels, as the increase in staff hiring was at a three-month low.

"But as the sector showed strong optimism for future business, concerns over the skilled labour availability are likely to persist in coming months."

The Office for National Statistics (ONS) confirmed on Friday that gross domestic product (GDP) grew by 0.7% in the fourth quarter of 2016, as the UK economy finished the year on a solid footing.

However, separate ONS data revealed that household saving rates had hit record lows as consumers plundered their savings to keep spending in the face of rising inflation.

On the construction PMI, Samuel Tombs, chief UK economist of Pantheon Macroeconomics, said the construction sector was likely to struggle this year despite an optimistic outlook from the sector.

He said: "The construction sector remains at the sharp end of the decline in corporate confidence and the renewed squeeze on households' real wages, both of which are consequences of the Brexit vote

" According to Markit, optimism about the outlook for business activity over the next year picked up in March to its second-highest level since December 2015, despite the near-term weakness of demand.

"But with the pressure on households' real incomes from rising inflation set to intensify this year and uncertainty about the UK's future relationship with the EU unlikely to be cleared up until late 2018, it is hard to see how builders' optimism is warranted.

"We continue to expect the construction sector to tread water this year."

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