February data from Markit/CIPS UK Construction Purchasing Managers’ Index which measures overall output in the construction sector – dropped to 46.8, from 48.7  during January. The index has posted below the neutral 50.0 value in each of the past four months and the latest reading signalled the fastest pace of contraction since October 2009.

The survey said that the marked fall in construction output reflected a return to declining levels of commercial building work and a sharp decrease in civil engineering activity.  Commercial construction decreased at the steepest pace for just over three years but was offset by an increase in housing activity in February, with the marginal expansion in residential building the first  improvement since May 2012.

UK construction firms highlighted an ongoing deterioration in their new order inflows during the latest survey period. Lower levels of new work have been recorded in each month since last June, reflecting cuts to client budgets and intense competition for new work. Nonetheless,
employment numbers rose fractionally in February, contrasting with the downward trend seen during the final three months of 2012.

The Markit/CIPS UK Construction Purchasing Managers’ Index® survey is in contrast to ONS construction new order figures for the final quarter of 2012, released last week. ONS said new orders rose 3 per cent compared to the third quarter and were 11 per cent higher than the same quarter one year earlier. Although new orders remain at historic lows, this is a second consecutive quarter of growth and potentially provides positive signs for the industry going forward.

Commenting on the ONS figures, Milja Keijonen, Economist at the Construction Products Association said; ‘Output in construction fell 8 per cent in 2012 and so the second consecutive quarter of growth in new orders provides some much needed positive news for the industry. New orders are a forward-looking indicator and it will take around 12-18 months before the industry sees the benefits of this in construction output. Private housing has a much shorter time-lag between orders and output so the 10 per cent growth in private housing new orders in Q4, compared to the previous quarter and year, should lead to a rise in output this year.

‘New orders in the commercial sector, the largest sector of construction, were 10 per cent higher in Q4 than in Q3 and were 14 per cent higher than one year ago. Despite this, commercial new orders remain 64% lower than the pre-recession peak so it is too early to get excited about a recovery in offices and retail construction.

The £10 billion of capital investment announced by the government over the last two years is yet to provide significant activity on the ground. If it were to occur, it would add an extra 0.8% to GDP, even without taking account of any wider benefits.’