Service sector the key after construction output slips

BRITAIN will have to rely on the dominant services sector to pull it out of recession after fresh figures showed construction output continued to shrink in September.

A key report released today is expected to show that services firms eked out some growth last month, but hopes that the overall economy bounced back in the third quarter have been shaken by recent manufacturing and construction data.

The Markit/Cips survey of construction firms, published yesterday, recorded a reading of 49.5 for September, which is an improvement on the previous month’s reading of 49 but still represents a decline in output as it falls below the no-change 50 mark.

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Residential building saw its biggest fall in nearly two years last month, and Markit said the sector was unlikely to recover before next year.

Tim Moore, senior economist at Markit, said: “Underlying construction weakness is likely to continue for the remainder of 2012.” He said the current stretch of falling new orders is now the longest seen for three years, while a lack of new projects meant that confidence in the sector remains close to its lowest since the UK economy nosedived into recession during 2008.

The weak outlook comes despite UK government efforts to boost the sector, with £10 billion of loan guarantees to build rented housing announced last month, on top of £40bn of infrastructure guarantees and the Bank of England’s Funding for Lending scheme to lower borrowing costs for households and smaller businesses.

Howard Archer, chief UK economist at IHS Global Insight said the industry continues to be hampered by “major headwinds”.

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