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UK construction maintains recovery

This article was written by Phillip Inman, economics correspondent, for guardian.co.uk on Wednesday 2nd May 2012 12.14 UTC

UK construction maintained its 16-month recovery last month, according to financial data provider Markit, despite official data showing that the sector experienced steep falls in output at the start of the year.

The Markit/Cips purchasing managers index (PMI) reported strong new orders and a rise in employment during April as growth fell back only marginally to 55.8 in April from 56.7 in the previous month.

Markit data shows much of the boost to output came from an upsurge in commercial building and civil engineering during the spring which is expected to continue through the summer months.

Commercial building expanded by 57.7 while civil engineering activity hit 56.5.

However, much of this activity is in London and the south-east where the Olympics, Crossrail and the development of King’s Cross are in full swing while projects like the Westfield shopping centre in Bradford remain on the drawing board.

Economists are divided over the conflicting data, with some believing the Office for National Statistics is overly gloomy while others argue the Markit data fails to pick up the downturn affecting smaller firms in the north and west.

House building is a high profile area that has also caused controversy. The ONS figures show it contracting – pushing UK into a double-dip recession – while the Markit data points to growth in April of 51.3.

The government wants to encourage private house building, but changes in planning laws, a new tax regime for developments and a dearth of mortgage lending has hampered its efforts.

Howard Archer, chief UK economist at IHS Global Insight, said the major discrepancies between the surveys meant all construction data and surveys have to be taken with a pinch of salt.

“This was highlighted by the fact that the purchasing managers surveys pointed to the strongest construction expansion for a year in the first quarter while the preliminary national accounts data estimated that construction output contracted 3.0% quarter-on-quarter in the first quarter and contributed 0.2 percentage point to overall GDP contraction of 0.2% quarter-on-quarter,” he said.

But, he argued that a broad of view of the sector showed it was expanding, though modestly.

“It is clear though that the construction sector still faces significant headwinds that are likely to limit the upside for activity,” Archer said.

“In particular, the government’s spending cuts are limiting overall expenditure on public buildings, schools and hospitals. On top of this, house building activity is likely to be constrained by persistently weak housing market activity, soft prices and a still uncertain outlook.

“And if the economy continues to struggle to develop sustainable growth over the coming months, there is the danger that construction activity will be hit by some projects being put on hold or cancelled altogether – particularly large ones.”

guardian.co.uk © Guardian News and Media Limited 2010

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