Activity in the construction industry contracted at the fastest rate for six months in December as it was hit by lack of demand and bad weather.

The decline was driven by a particularly weak month for residential house building.

Markit's Purchasing Managers Index, which measures overall output in the sector, dropped from 49.3 in November to 48.7 during December.

The index has now posted below the 50.0 value (which denotes neither expansion or contraction) in four of the past five months.

The only bright moment during that period was an 8.3% month-on-month spike in October.

Subdued outlook

The latest reading indicated the fastest rate of contraction since June 2012 when output was constrained by unusually bad weather and an extra bank holiday.

Tim Moore, Senior Economist at Markit, said the December figures had rounded off "a miserable year for the UK construction sector".

"Survey respondents are also relatively subdued about the 2013 outlook amid reports from their clients that budgets will be under even greater pressure over the year ahead," he said.

Although some survey respondents suggested that bad weather in December had resulted in unusually long seasonal shut downs at their units, the majority of companies cited weak underlying demand at the end of 2012.

Housing activity was by far the weakest performer of the three broad construction sub-categories monitored by the survey in December.

The decline in residential construction output was the seventh in as many months and the steepest since December 2010 when heavy snow halted activity.

Commercial activity also fell in December, extending the current period of reduction to five months.

However, civil engineering bucked the overall trend by posting another moderate expansion.

Shrinking pool
UK construction firms reported falling volumes of incoming new work for the seventh consecutive month in December, while input prices continued to rise.

The contraction in new orders accelerated markedly over the month and was the fastest since April 2009.

Markit said anecdotal evidence widely cited strong competition for a shrinking pool of new invitations to tender amid a background of subdued business and consumer confidence.

Dr Howard Archer, Chief UK Economist at IHS, believed the sector continued to face major headwinds going into 2013.

These included reduced public investment and spending, an extended weak economy, a struggling housing sector, and problems in getting funding for large-scale projects.

"The construction sector will be fervently hoping that the economy can see sustained growth in 2013 and that this stimulates building work," Archer said.

"The sector will also be hoping desperately that the government comes up with more support and initiatives to lift activity on top of the limited help provided in the Autumn Statement."

Economists at Barclays Research were of a similar mind, stating that: "We expect construction activity to remain subdued into 2013 as the flow of new work is likely to suffer from the low levels of government and private investment and the depressed housing market."

Related share prices