Bloomberg News

U.K. Construction Almost Stagnates in September as Orders Drop

October 04, 2011

Oct. 4 (Bloomberg) -- U.K. construction output almost stagnated in September as the level of new business fell for the first time since February 2010.

A gauge of building activity based on a survey of purchasing managers dropped to 50.1 from 52.6 in August, Markit and the Chartered Institute of Purchasing and Supply in London said in a report today. That’s lower than the median forecast of 51.6 in a Bloomberg News survey of 10 economists. A measure above 50 indicates expansion.

“Construction companies continued to struggle in the face of growing concerns about the wider economy, with weaker client confidence leading to a reduction in new business,” Markit economist Sarah Bingham said in the report. “Growth slowed to near-stagnation, with constructors relying on work on existing contracts to support output. This therefore bodes ill for construction activity in the coming months.”

The U.K.’s recovery is faltering as global growth slows, Europe’s debt crisis weighs on confidence and the government implements the biggest budget cuts since World War II to narrow the deficit. Meanwhile, a squeeze on household incomes from faster-than-targeted inflation and rising unemployment is eroding consumer confidence and undermining the housing market.

‘Subdued’ Confidence

Civil engineering declined in September as government- related clients curtailed spending, while homebuilding shrank at the fastest rate in nine months, Markit said. Commercial building expanded, though remained below its long-term trend. The report also said that confidence among construction executives “remained relatively subdued.”

While input costs for builders rose “markedly” in September, driven by higher raw material and fuel costs, the rate of inflation slowed “sharply,” with the measure registering its sharpest monthly decrease since March 2009, Markit said.

U.K. manufacturing rebounded in September from a 26-month low as factories depleted backlogs of work at the fastest pace for two years, CIPS and Markit said yesterday. A survey due to be published tomorrow will show British services growth slowed, according to the median forecast of 28 economists in a Bloomberg News survey.

The deteriorating outlook will spur the Bank of England to resume its emergency bond-purchase program this week, according to nine out of 30 economists in a Bloomberg News survey. That’s the highest proportion since November 2009, when the central bank last expanded the program. The rest say the bank will hold the program at 200 billion pounds ($308 billion).

All 53 economists in a separate survey see no change in the Bank of England’s key interest rate at the Oct. 6 policy meeting, which is at a record low of 0.5 percent.

--Editors: Fergal O’Brien, Alan Crawford

To contact the reporter on this story: Scott Hamilton in London at shamilton8@bloomberg.net

To contact the editor responsible for this story: Craig Stirling at cstirling1@bloomberg.net


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