Construction PMI falls to 8-month low in October
LONDON (Reuters) - Activity growth in the construction sector slowed more than expected in October to its weakest in 8 months, a survey showed on Tuesday, suggesting a key prop of recent economic growth may be starting to crumble. The Markit/Chartered Institute of Purchasing and Supply construction PMI fell to 51.6 in October from 53.8 in September, against expectations for a more modest easing to 53.0.
Gilt futures shot up and the pound fell against the dollar and the euro after the figures, which suggested construction would not make as strong a contribution to growth in the last three months of 2010 as it did earlier in the year.
Construction contributed about a quarter of the surprisingly robust 0.8 percent growth recorded between July and September and around half of the 1.2 percent growth in the second quarter, although it makes up only 6 percent of total output.
"The survey indicates that construction activity is losing momentum and the economy will not be able to rely on a significant growth contribution from the sector going forward," said Howard Archer, economist at IHS Global Insight.
Signs that growth is slowing may encourage Bank of England policymakers to inject more stimulus into the economy to shore up the recovery, although there is only an outside chance they will take that option at their meeting this week.
A breakdown of Tuesday's data showed activity in the housing and civil engineering sectors fell in October, although commercial construction increased markedly.
And analysts said upcoming government spending cuts would put pressure on the sector in the months ahead.
"Construction activity will be hit appreciably by the coalition government's extended pruning of public spending as this is clearly going to hit expenditure on public buildings, schools, hospitals and infrastructure," Archer said.
"Furthermore, housing market activity has been muted in recent months, prices are softening and the outlook for the sector is currently looking increasingly worrisome, so this could well weigh down on house building."
New orders continued to rise, albeit at the slowest pace in 8 months, and firms cut jobs for the fourth month running even though businesses remained optimistic about the prospects for the coming 12 months.
"Confidence remained weak in the context of historical data, as panellists were cautious over the potential impact on activity that will arise from cuts in government spending," the survey said.
(Editing by Stephen Nisbet)
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