Construction not out of the woods yet

Published:  04 February, 2011

LONDON: Economists caution against reading too much into the PMI construction figures released this week showing an upsurge in activity.



Britain's construction industry bounced back last month following December's snow-related slump but just as December's survey understated the strength of the construction sector due to the severe weather, so does January's survey overstate it as there is clearly a bounce back effect, says Howard Archer at IHS Global Insight.

"It is evident that the underlying trend in construction activity has weakened markedly from the peak levels seen in the second and third quarters of 2010," he say.

Housing market activity has been moribund in recent months, house prices are softening and the outlook for the sector is currently worrying, so this could well weigh down significantly on house building, says Archer.

The January construction purchasing managers' survey indicated that house building activity was essentially only flat after contracting over the previous four months and at the fastest rate in December since April 2009, says Archer.

Chris Williamson, chief economist at Markit says: "Looking at the trend in recent months, the housing market seems to be a particular area of weakness, with house building stagnating at best. "The outlook appears to be one of nervous optimism... This nervousness about future prospects was highlighted by a disappointing further reduction in employment," he says.

David Noble, chief executive at CIPS says: "At the moment it is hard to tell what 2011 holds for the sector, even though confidence about future activity has risen, it is still weak and many are pinning their hopes on general economic improvements to make that confidence a reality... Bearing this in mind we may be looking at another disappointing year with continued uncertainty where hopes are dashed."

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