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UK construction new orders suffer biggest fall since 1980

Cuts to school building partly to blame – although private sector housebuilding remains muted and shopping centre construction has almost ground to a halt

The chancellor, George Osborne, is expected to come under renewed pressure from opposition politicians and business leaders to stimulate the economy after official figures revealed the sharpest fall in new orders for the construction industry since 1980.

The Office for National Statistics found that new orders were 16.3% lower in the second quarter on the previous three months and 23.2% lower than in the same period last year.

Analysts said they had been expecting the figures to show a slowdown across the construction sector – but were shocked by the sheer scale of the slump.

Cuts to government school building along with other infrastructure projects were partly to blame, according to experts, though private sector housebuilding remains muted and the building of retail outlets and shopping centres has almost ground to a halt.

Areas in the south and west were hardest hit – with north London, Bristol and the Medway in Kent suffering some of the largest falls. The north-east also suffered heavily – with new orders in Tyne and Wear dropping by almost half on the previous quarter.

A survey of construction industry purchasing managers found a similar picture, with employment down for the third month in a row. The survey showed the sector was continuing to expand, albeit slowly, but with lower margins and confidence at its lowest for eight months.

The PMI stood at an eight-month low of 52.6 in August from 53.5 in July and a 2011 peak of 56.5 in February.

Double whammy

Howard Archer, chief UK economist at IHS Global Insight, said the two surveys were a double whammy for the sector, which has yet to climb out of the slump triggered by the financial crisis.

“There can be no doubt that the Bank of England will keep interest rates down at 0.5% at the September meeting of the MPC next week and for a considerable time to come thereafter. Furthermore, pressure is building for action to try and help the economy through more quantitative easing,” he said.

The Labour party has called for short-term tax cuts to promote growth and prevent the economy slipping back into recession.

Archer added: “While the purchasing managers’ survey does at least indicate that construction activity is still expanding, it shows output growth slowing, incoming new business at a seven-month low, employment in the sector contracting at an increased rate, squeezed margins and business expectations deteriorating. Meanwhile, the data from the ONS is horrible. This bodes ill for output prospects in the near term at least.” © Guardian News & Media Limited 2011 | Use of this content is subject to our Terms & Conditions | More Feeds