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Construction figures deal blow to government housebuilding plans

COMMENTARY
The UK Conservative coalition government seems to have a lot in common with the US Republican Party, and dare I say it, the Europeans with respect to solving their problem with Greece, et al with austerity.

I learned some economics at Cambridge a long time ago. Not surprisingly I have a bias towards Keynesian
Peter Burgess

Construction figures deal blow to government housebuilding plans
Figures from the construction industry for August showed housing activity at its lowest ebb since the beginning of the year

IMAGE The construction industry slowdown is hampering the housing market. Photograph: Andrew Paterson/Alamy

The scale of the task facing the government as it tries to revive the economy was laid out on Tuesday after figures from the construction industry for August showed housing activity at its lowest since a fall caused by bad weather at the beginning of the year.

A run of steep falls in activity dating back to the spring left housebuilders at their lowest ebb since January, according to figures from the Markit/CIPS purchasing managers' index (PMI).

The Chartered Institute of Purchasing & Supply described the figures as 'dire news for the construction industry', while Markit, which compiles figures provided by the institute, said residential building activity 'was the worst performing category of construction output monitored by the survey in August'.

Across the sector, construction companies reported a drop in confidence as new orders fell at the fastest rate since 2009 to register a balance of 47.3. Overall activity fell to 49 on a seasonally adjusted basis. Figures above 50 indicate expansion.

Commercial activity dropped for the first time in two and a half years and civil engineering work also suffered a setback.

Ministers are keen to boost the housing sector to kickstart the economy and alleviate a chronic shortage of affordable homes. But a lack of mortgage credit has stymied potential buyers and kept the number of transactions near all-time lows. Housebuilders remain wary of constructing new homes while demand is restricted and sales are in the doldrums.

The latest figures are bound to put pressure on the Treasury to accelerate its support for the housing market in the coming months to turn the industry around.

The chancellor, George Osborne, has backed several new schemes to attract first-time buyers, but the impact appears to be limited. A report by Sir Adrian Montague calling for local councils to relax planning rules governing the proportion of social housing in new private developments has yet to be implemented.

Tim Moore, senior economist at Markit, said: 'August data reaffirms that UK construction firms are suffering a prolonged downturn in new work and there is little evidence to suggest an imminent rebound in output levels. This has been the pertinent message from the UK construction PMI surveys throughout the summer, and most worryingly the latest drop in new orders was the fastest since the sector was in full-scale retreat in early 2009.'

The Markit survey of the construction industry has proved more buoyant this year than figures from the Office for National Statistics, which have shown a more severe contraction and gloomier outlook. The sector has proved a significant drag on the UK's overall GDP growth, helping to drag it into a second recession in three years in the first half of the year.

Moore said it was likely that the most recent surveys from Markit revealed construction would continue to hit growth.

'A construction decline for 2012 overall is statistically baked in the cake. To bring output for the year as a whole up to the total level seen in 2011 would require a rather implausible double-digit growth surge in each of the final two quarters. Therefore, an important issue is simply whether a floor has yet been established, and the survey evidence at this stage seems to suggest it hasn't.

'Indeed, output dropped in August at the second-fastest rate since the snow-affected month of February 2010, with commercial activity even joining the housing and civil engineering sectors in contraction for the first time in two and a half years.'

David Noble, chief executive at the CIPS, said: 'This is dire news for the construction sector, which saw its fastest drop in new orders for over three years. Undoubtedly the government will come under more pressure to help the sector and implement Sir Adrian Montague's proposals to kickstart house building when it responds later this year.'