Construction sector maintains momentum

Published:  05 April, 2011

UK: The construction sector continued to grow strongly in March after its snow-related dip at the end of 2010, despite raw material costs rising again.

Figures from Markit and the Chartered Institute of Purchasing and Supply on Monday showed that the sector has maintained its healthy start to 2011. The CIPS/Markit index for the month stood at 56.4, only a fraction down on February's 56.5 - which was an eight-month high. A reading above 50 signifies expansion rather than contraction, and March's reading was stronger than City economists had predicted.

The index had dipped into negative territory in December as its housing component in particular fell sharply, but the sector, which makes up around 7% of GDP, has recovered since.

The survey also showed that input prices rose to a 31-month high, mainly driven by higher prices for commodities such as oil.

Howard Archer of IHS Global Insight said the figures were a boost for the UK economy, but warned that there are still "significant headwinds" for the construction sector.

"The coalition government's extended pruning of public spending will clearly limit expenditure on public buildings, schools, hospitals and infrastructure (even though the government is keen to prioritise some infrastructure projects). Furthermore, housing market activity has been in the doldrums in recent months, house prices are soft and the outlook for the sector is currently worrying, so this could well weigh down significantly on house building. Meanwhile, current soaring input costs are squeezing margins in the sector, particularly as pricing power still appears to be limited."

The strongest sub-sector in construction in March was civil engineering, followed by housing and then commercial work weakest.

Employment in the sector continued to fall for the ninth month in succession, but only fractionally, with a reading of 49.9.

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