April 3, 2013 / 8:35 AM / 7 years ago

UK construction shrinks for third month running in March - PMI

LONDON (Reuters) - Britain’s construction output contracted in March for the third month in a row, a survey showed on Wednesday, suggesting the sector will have weighed on economic growth in the first quarter.

Construction workers build a new residential property development in north London, March 21, 2013. REUTERS/Neil Hall

The Markit/CIPS Construction Purchasing Managers’ Index (PMI) inched up to 47.2 from 46.8 in February, holding below the 50 level that separates expansion from contraction and slightly undershooting forecasts for 47.5.

Markit, which compiles the survey, said that unusually cold weather combined with sluggish underlying demand kept a lid on construction work in March.

“The negative print for construction output mirrors that seen for manufacturing, and now leaves the service sector as the last great hope for avoiding another slide in UK GDP,” said Tim Moore, senior economist at Markit.

A PMI survey for the service sector in March is due out on Thursday, giving a clearer sign of whether Britain’s economy avoided its third recession in less than five years, having already contracted in late 2012.

Despite the weak headline number, the construction sector showed some signs of resilience last month, according to Wednesday’s survey.

The decline in new orders was the least sharp since October, while house building grew at the fastest rate since May 2012.

The promising trend in residential work helped lift optimism among firms to its highest level in almost a year, as they forecast a rise in output over the coming 12 months.

The Treasury and the Bank of England have announced several measures since last year to try to boost the housing sector, including government plans to guarantee up to 130 billion pounds of mortgage issuance.

Despite making up less than 7 percent of Britain’s gross domestic product, weak construction output was the main reason the economy contracted in three quarters last year.

Judging by the PMI and official data, which lags the survey, the sector did little to help the economy in early 2013.

Construction output fell 6.3 percent in January compared with December, non-seasonally adjusted data from the Office for National Statistics showed last month.

Reporting by Olesya Dmitracova; Editing by Hugh Lawson

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