Drop in housebuilding recorded

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A fall in housebuilding activity led to a contraction of the construction industry

The construction sector contracted in December after housebuilders recorded their lowest level of activity for 20 months, according to new figures.

The latest Markit/CIPS Purchasing Managers’ Index (PMI) survey – where a reading above 50 indicates growth – slipped to 49.1 in December from 51.8 in November, hindered by snowy weather which delayed work.

The downturn was led by the housebuilding sector, which suffered its worst performance since April 2009 and its fourth consecutive month of decline as the weakening property market led to a slowdown in new projects.

David Noble, chief executive at CIPS, described the survey as “a disappointing end to the year for the UK construction sector”.

He added: “A major worry is the situation in the housing market. Proposed measures to further tighten regulations on mortgage lending may only serve to intensify this worry into a longer, more protracted year of concern.”

Civil engineering activity also fell into decline in December as the Government’s austerity cuts began to bite. Commercial building was the only sector that continued to expand, although its rate of growth was the slowest for 10 months.

The figures are worrying because earlier this year the construction industry rebounded strongly from a deep contraction in the recession and was a major factor behind the UK’s economic growth in the second and third quarters of 2010.

While the construction sector only accounts for 6.3% of GDP, it was responsible for half of the 1.1% GDP growth in the second quarter and around a quarter of the 0.7% GDP growth in the third quarter.

Howard Archer, chief economist at IHS Global Insight, said: “Even allowing for the hit to activity coming from December’s severe weather, it is very clear that the economy cannot rely on a major contribution from construction going forward.”

The number of people employed in the construction industry fell sharply in December as anecdotal evidence showed companies made further redundancies. Construction companies also reported the highest inflation in the price of building materials for seven months.

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