-Output rises fractionally compared to September
-New work drops for the fifth month running
-Employment reduced at most marked pace since August 2011



Activity in the UK´s construction sector improved in October, but the volumes of new work decreased again, as the current uncertainty in the economic environment continued to weigh on businesses´ decision making. Squeezed budgets also played a role, survey respondents said.

The current period of falling new order (the sub-index rose to 49 from 47.6, but remains the 50 point break-even level) volumes is the longest since that seen during 2008/09.

Thus, the UK construction sector purchasing managers´ index for the month of October has come in at 50.9, versus the previous month´s reading of 49.5, according to the latest data released by Markit.

The consensus estimate had been for a reading of 49.

The latest reading was also much weaker than the average seen in the decade leading up to the global financial crisis in 2008 (56.3), Markit adds.

By sectors, higher levels of construction output were confined to civil engineering, with the sub-sector registering moderate growth for the second month running. Residential building activity was the weakest area, with output declining for the fifth successive month. Commercial activity also dropped in October, but at only a marginal pace.

Outlook at low levels, employment worsens

A lack of new work to replace completed projects in turn resulted in a return to job shedding during October. Although much less marked than that seen in 2008/09, the latest fall in staffing levels was the fastest since August 2011. Sub-contractor usage also decreased at a solid pace in October, extending the current period of decline to three months.

Construction companies' assessment of the year-ahead business outlook remained low in the context of the survey history (increased to 56.2 from 55.7). Reflecting this, at 56.2 in October, the index measuring business expectations was closer to the survey-record low seen four years ago (45.9) than the long-run series average (70.4).

Interestingly, delivery times continued to lengthen and anecdotal evidence generally attributed it to a lack of stocks and capacity reductions at suppliers.

Input price inflation accelerated further from June's recent low, with the latest rise in average cost burdens the fastest in 2012 to date. In line with recent trends, survey respondents mostly commented on higher fuel and energy costs during October.

Construction PMI still ahead of official data
Commenting on the data this is what economists at Barclays Research had to say: "The October survey suggests some small improvements in the sector; however, we would point out that many aspects such as new orders and housing and commercial activity remained consistent with contracting activity.

"Furthermore, we would not necessarily expect the improvement in the PMI survey to be reflected in the official data, as the construction PMI has been persistently more positive than the official data in recent months. We expect the construction sector to remain soft in the near term as the weakness in housing activity and low levels of public and private investment are likely to depress the flow of new work for the sector."



AB

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