September 4, 2012 / 8:36 AM / 7 years ago

UK construction contracts as orders slump

LONDON (Reuters) - British construction activity fell unexpectedly last month as new orders slumped at the fastest pace since the height of the 2008-2009 financial crisis, a survey of purchasing managers showed on Tuesday.

A gull flies near construction cranes with the Shard building seen behind in London August 24, 2012. REUTERS/Toby Melville

The decline will increase doubts about the recovery, as the sector’s contraction by nearly 10 percent in the first half of 2012 was the main drag on the economy, which fell back into recession at the end of last year.

The Markit/CIPS construction PMI dropped to 49.0 in August from 50.9 in July, below economists’ expectations of a smaller decline to 50.0 and the lowest reading since June, when activity was hit by wet weather and an extra public holiday.

“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,” said Tim Moore, senior economist at survey compiler Markit.

“Most worryingly, the latest drop in new orders was the fastest since the sector was in full scale retreat in early 2009,” he added.

The government has launched a number of initiatives to revive growth in the sector, pledging to back up to 50 billion pounds worth of infrastructure and house building investment through state guarantees.

However, the government has so far shied away from increasing public infrastructure spending outright, which many economists and business groups are calling for, as its hands are tied by its pledge to erase a huge budget deficit.

Markit’s Moore warned that a quick turnaround looked highly unlikely.

Construction 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, he said.

On Monday, a unexpectedly strong rebound in the manufacturing PMI had boosted hopes that the economy may finally move out of recession in the third quarter, though the survey still pointed to a slight contraction in output.

Reporting by Sven Egenter; editing by Ron Askew

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