Construction activity surge continues

Activity in the construction sector continued to grow strongly during March, according to the latest CIPS/Markit survey.

The index came in at 56.4 last month, down marginally from February’s eight-month high of 56.5. Any figure above 50 on the index represents growth.

The figure exceeded City analysts’ forecasts, whose average prediction for the index had been 54.8.

Economists at Markit, the compilers of the survey, believe construction output will return to growth in the first quarter after contracting 2.5% in the final three months of 2010.

But the authors said the performance of other indicators was cause for concern.

Input costs rose at their fastest rate since August 2008 last month and government spending cuts continued to weigh on confidence.

Sarah Ledger, economist at Markit, said: “UK construction companies reported a strong end to the first quarter, with activity rising at a similar pace to the eight-month high recorded in February.

“The data therefore add to the generally positive flow of data that have been seen since the new year, adding to evidence that the economy rebounded strongly from the surprise contraction of GDP in the final quarter of last year.

“However, whether the resurgent growth will prove long-lasting remains in doubt. Worryingly, new order growth slowed more notably than that of activity in March, pointing to a slowdown in activity over the coming months, especially if the pattern is sustained.

“Mirroring this, confidence among constructors remained subdued, slipping to a three-month low, with many companies still wary about the possible impacts from public spending cuts.”

David Noble, chief executive at the Chartered Institute of Purchasing & Supply, said: “On the surface there wasn’t much of a change in the construction sector in March, but there is plenty to put businesses on edge about their future prospects.

“Fractionally weaker levels of activity and a more noticeable slowdown in new orders contributed to an easing of business confidence, which remains at historically low levels.

“The spectre of government spending cuts is causing the greatest concern, particularly as government stimulus starts to crumble. We may also be at the tail-end of temporarily higher activity levels seen after Q4’s weather disruption.

“Similarly, although March saw the third monthly growth in a row of residential construction activity and staff reduction was it’s weakest in many months, other indicators showing continued volatility in house prices and poorer consumer confidence mean there is still a great deal of uncertainty.”