Hopes of swift recovery in construction industry are dashed

Published on Thursday 2 July 2009 21:20

HOPES of a recovery in the construction industry were dashed yesterday as new economic data showed that activity in June fell back from May's 13-month high.

Experts said the drop fuelled fears that the country was in the grip of a "W-shaped" recession – with peaks and troughs before the downturn ends.

Yesterday's report from the Chartered Institute of Purchasing and Supply (Cips) showed that the Purchasing Managers' Index (PMI) registered 44.5 in June – a marked drop on the 45.9 shown in May and still well below the no-change figure of 50.

The PMI data from Cips came as official government figures revealed that construction orders in the March-May quarter were down 1 per cent compared to the previous three months.

Orders in the year to May were 30 per cent lower than 12 months earlier, according to the Office for National Statistics.

Orders for private housing were up 11 per cent in the past three months compared to the previous quarter, but were still 37 below the year-earlier level, the ONS said.

David Noble, chief executive at Cips, warned that yesterday's PMI report hampered hopes of the end to the downturn. He said: "After the improvements seen in April and May, the sector has retracted as firms battle to consolidate their position in the tough market.

"Against the backdrop of difficult market conditions, the UK construction sector is on a knife edge."

He added: "This data adds to speculation of a 'W-shaped' recession."

The report on the housing and commercial construction subsectors both showed a worsening in the pace of decline during June compared with May.

Jobs continued to be shed at a heavy rate in June, while the use of sub-contractors also fell.

The report also showed that the level of new orders being received continued to fall, although, like in May, this was again at a modest rate.

However, optimism that the end of the recession could be in sight meant that companies in the construction industry maintained the sharp improvement in confidence over future business prospects that they registered in May.

Howard Archer, chief UK economist at IHS Global Insight, said: "Overall, the evidence suggests that the worst of the contraction is over for the contraction sector, but it is still very fragile."

Archer said the sector was being helped by the government's decision to bring forward some infrastructure spending as part of its efforts to boost the economy.

But he added: "Even so, with housing market still very low by past norms and the commercial property sector under serious pressure, serious concerns remain about the outlook for the construction sector."