Construction sector sees new orders at lowest levels since 1980

NEW orders in the construction sector in the second quarter of the year fell to their lowest level since 1980, according to figures released by the Office for National Statistics yesterday.

The fall of 16.3 per cent suggests the sector, which has seen strong growth in recent months, could be running out of momentum and added to fears that the UK’s economy is in danger of slipping back into recession.

The ONS data revealed that orders for public and private housing fell 32 per cent and 21 per cent respectively compared to a year ago, while infrastructure orders were down 44 per cent.

Although the ONS new orders data is typically volatile and can show big swings between quarters, the latest drop is unusually steep.

Howard Archer, economist at IHS Global Insight, described the figures as “horrible” and that it “bodes ill for output prospects in the near term at least”.

He said: “The construction sector faces an extremely challenging environment, which threatens to weigh down appreciably on activity over the coming months.”

A separate survey, the Markit/Chartered Institute of Purchasing and Supply (CIPS) construction sector index report, also revealed yesterday that confidence hit its lowest level for seven months in August.

The index, where a reading above 50 indicates growth, showed that the sector slowed to 52.6 in August, down from 53.5 in the previous month. New business increased at its slowest rate for seven months.

The housing sector posted another decline in activity, while an improved performance from commercial industry was outweighed by a weaker rise in civil engineering work.

The survey also found that input cost rises were at their highest for three months – blamed on higher fuel and raw material prices – putting further pressure on profit margins. Firms also reported that they continued to cut back on employment and subcontractor usage.

CIPS chief executive David Noble said: “Reality is continuing to bite in the UK construction sector, as worries over wider economic conditions contribute to a slower rate of output growth.

“However, the proof of the pudding will be whether the reported increase in competition for new orders, plus increases in fuel and commodity prices, will subdue confidence going forward. Although overall activity is still in growth territory, there may be some question about whether this will continue for much longer.”

The figures follow bad news on Thursday for the manufacturing sector, which contracted at its fastest pace in more than two years, according to a similar Markit/CIPS survey of purchasing managers.

“One by one the engines of growth seem to be failing,” said Philip Shaw, an economist at Investec.

Although the powerhouse services sector is still in growth, it is being squeezed as disposable income is hit by inflation.