Belfast Telegraph

Construction growth dips amid rising cost concerns

By Peter Cripps

A robust performance from the construction sector in March was overshadowed yesterday by further warnings over the spiralling cost of fuel, oil and steel.

The latest Markit/CIPS Purchasing Managers' Index (PMI) survey for the UK construction sector - where a reading above 50 indicates growth - fell to 56.4 in March, slightly down on the eight-month high of 56.5 in the previous month.

Economists had forecast that the rate would fall to 54.8, but each of the three sub-sectors of the industry - civil, residential and commercial - recorded continued growth in March.

There were further signs of inflationary pressure after the industry said input prices rose to a 31-month high, driven by higher raw-material prices.

Other "worrying" signs about the sector's future health have also emerged, as confidence was dented by the government's austerity cuts and growth in new orders slowed to below its historical average.

David Noble, chief executive of CIPS, said: "On the surface there wasn't much of a change in the construction sector in March, but there is plenty to put businesses on edge about their future prospects. The spectre of government spending cuts is causing the greatest concern, particularly as government stimulus starts to crumble."

Yesterday's figures will boost hopes that the economy returned to growth in the first quarter of 2011, but will heap more pressure on the Bank of England to raise interest rates in a bid stave off mounting inflation.

The number of people employed by the industry fell for the ninth month in a row as builders cut costs, although the rate of decline in staff levels slowed.

The construction sector has now seen growth in 12 of the past 13 months, with the exception of December when growth was disrupted by the Arctic weather conditions.

Howard Archer, chief global economist at IHS Global Insight, said the sector held up pretty well last month but is less optimistic about its future prospects.

He said: "Going forward, construction activity faces significant headwinds.

"In particular, the coalition government's extended pruning of public spending will clearly limit expenditure on public buildings, schools, hospitals and infrastructure.

"Furthermore, housing market activity has been in the doldrums in recent months, house prices are soft and the outlook for the sector is currently worrying, so this could well weigh down significantly on house building."