UK construction PMI at 23-month high in January

LONDON: British construction activity fell at its slowest pace in 23 months in January, a survey showed on Feb 2, as firms shed jobs at a reduced pace and confidence improved, but a fall in orders showed conditions remain tough.

The Chartered Institute of Purchasing and Supply and Markit said their construction PMI index rose to 48.6 in January from 47.1 in December.

Employment in the sector fell at the slowest rate since August 2008, and construction firms remained confident about the prospects for recovery.

However, analysts said firms' confidence may be on shaky ground, especially as an expected clamp-down on government spending after a national election later this year will likely hit major infrastructure projects.

Housebuilding was the only sector where construction output grew in January, although at a sharply lower rate than in December, according to the survey, while declines in commercial property activity and civil engineering eased.

"While the housing market did pick up during 2009, activity is still below normal levels," said Colin Ellis, economist at Daiwa Securities.

"And with public sector investment likely to be cut sharply, the construction sector is set to lose a significant source of demand going forwards. As such, there is probably little reason to expect a strong recovery in construction activity any time soon."

Indeed, the survey showed that new orders fell last month, with firms citing funding constraints and competitive pressures as a drag on new workloads.

"Though the rate of decline slowed, competition is still intense. Operating conditions are tough and firms are now measuring performance from such a low base level that there's a general consensus things can't get much worse," said CIPS chief executive David Noble.

Construction accounts for around 6% of the UK's economic output, and official GDP data showed output was unchanged in the last three months of 2009, a slightly better performance than the contraction reported by CIPS survey. -- Reuters