Housebuilding raises recovery doubt

A reduction in activity by housebuilders contributed to a marked slowdown in the construction sector last month, according to figures released today.

The Markit/CIPS survey, where a reading of above 50 represents growth, showed the sector grew at 53.3 in April, down from 56.4 the previous month and raising further doubts about the strength of the UK's economic recovery after quarterly GDP figures last week were hit by a 4.7% drop in construction output.

Today's figures revealed homebuilders saw their first decline in activity of the year, due to weakness in the housing market, while civil engineering also experienced a slowdown in the wake of the Government's austerity cuts.

However, commercial projects showed strong growth as UK business customers recover from the recession.

The figures suggest the sector is losing momentum with worrying implications for the UK's stuttering economy, which has effectively flatlined for the past two quarters.

The industry shed jobs for the 10th month in a row, although this time only marginally, as input prices rose at their fastest pace for three years, squeezing profit margins as construction firms struggle to pass on higher costs to customers.

Confidence in the future remained lower than normal but rebounded slightly since last month, as new orders continued to rise.

David Noble, chief executive at CIPS, said: "Low activity levels in the housing market, tighter government purse strings, rising input prices in fuel and materials, as well as poor cash flow in some cases, are clearly a worry.

"Confidence amongst UK constructors remains at a historically low level as the number of jobs continues to drop.

"However, business sentiment improved slightly compared to March. This partly reflects expectations that growth in the wider UK economy will help support construction activity going forward."

Today's data follow figures released yesterday that revealed manufacturing growth slowed to a seven month low in April.

The weak performance of the UK economy makes it more likely that the Bank of England's Monetary Policy Committee will keep interest rates at their record low of 0.5% tomorrow.

Howard Archer, chief economist at IHS Global Insight, said: "The construction sector clearly faces a challenging environment, which is likely to limit activity over the coming months.

"In particular, the coalition Government's extended pruning of public spending will clearly limit expenditure on public buildings, schools, hospitals and infrastructure.

"Furthermore, housing market activity is still very weak compared to long-term norms, house prices are soft and the outlook for the sector remains worrying."