Out-Law News 2 min. read
05 Feb 2013, 3:52 pm
Graham Robinson of Pinsent Masons, the law firm behind Out-Law.com, was commenting as a monthly survey of activity in the sector showed that output had fallen for the third month running. Some respondents to the Markit and Chartered Institute of Purchasing and Supply's Construction Purchasing Managers' Index (PMI) for January 2013 blamed the weather for reduced activity, but the majority cited "weak underlying client demand and a lack of new projects".
"Housing is a significant part of the construction sector with all new housing work accounting for 25.9% of new construction in 2011," Robinson said. "Without growth in housing, the outlook for UK construction sector is likely to remain negative this year."
"The private commercial sector is construction's largest sector, and in the three months to November 2012 it has fallen sharply by 16.2% compared to the same period in 2011, leaving construction as a whole 9.8% lower than the year previous," he said. "It would be surprising if we saw turnaround in the private commercial sector for construction at present, as the outlook for business investment still remains weak."
Although the start of "recovery from a deep recession" for the construction sector was likely in 2013, Robinson warned that return to pre-crisis levels of activity is unlikely. "We should remember that any recovery will be from a significantly lower base, as UK construction output has slumped by over 20% in real terms since the start of the financial crisis," he said.
The Markit/CIPS data (3-page / 83KB PDF), which is collected from a survey of more than 170 purchasing executives working within the construction sector, reflected a score of 48.7 in January. This figure was unchanged from the six-month low recorded in December 2012, and below the score of 50 which indicates growth for the third month running. The average monthly PMI over the decade leading up to the global financial crisis in 2008 was 56.3.
The report indicated a moderate reduction in business activity, at the same pace of contraction as December. According to the survey, lower output in the sector reflected falling housing and civil engineering activity. The decline in civil engineering activity was the first since August 2012; however the drop in residential construction was the slowest for three months.
"It is of no surprise that the survey is registering lower levels of activity in infrastructure as the new PF2 arrangements introduced by government late last year have yet to take any effect, and the outlook for investment in new infrastructure by institutional investors also remains weak," Robinson said.
New business fell for the eighth consecutive month, marking the longest continuous period of decline since 2008/09, according to the PMI figures. However, the drop in orders was not as drastic as in previous months and was the slowest since October.
Despite the continued drop in output and orders, survey respondents were slightly more confident about the outlook for their businesses over the next 12 months. The degree of optimism remained weak by historical standards but was the highest since July 2012, improving further from the nearly four-year low recorded in November 2012. Businesses also reported higher construction workforce numbers for the first time in four months.
"Snowfall at the start of the year may have disrupted output to some degree, but unfavourable weather outside is clearly far down the long list of difficulties afflicting construction companies at present," said Tim Moore, Markit economist and author of the report. "Weakness was again most prominent within the house building sub-sector during January, while civil engineering swung back into contraction after a four-month period of growth."
"Looking ahead, construction firms reported improved optimism about the business outlook, although much of this appeared to rest on hopes that the chorus of calls for greater public sector investment spending starts to come to fruition," he said.
