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Construction market decline continues to ease

The construction sector, while still in decline, is showing further signs of easing, with the monthly Construction Purchasing Managers’ Index (PMI) showing a figure last seen in April 2008.

The figure of 45.9 recorded for May is the highest for 13 months, and is edging ever closer to the figure of 50 - which would show no market decline.The figure has risen from 30.9 in March to 38 in April.

The number does however show that market decline has now been recorded for 15 consecutive months - the longest period of decline in the 12-year history of the index.

Director at the Chartered Institute of Purchasing & Supply, Roy Ayliffe, said: “After appearing to be in freefall in February, we are starting to see the construction economy show some signs of life and steer itself back onto the road of recovery. Latest PMI data showed the slowest rate of contraction since April 2008, with murmurs of a possible upturn in house-building activity.

“This data suggests that, while the construction sector may be out of the intensive care unit, it’s still some way from making a full return to health and there is always danger of a relapse.

“Firms are still operating in an extremely tough business climate. Purchasing managers voiced concern as new contracts remained scarce and competition is rife, leading to increasingly competitive quotations in a bid to secure business. More unfortunately, we’re still seeing staff culled at a severe rate in an effort to maintain tight cost control,” he said.

While market confidence is improving, competition for business remains fierce. “Average prices paid by UK constructors declined in May for a seventh successive month and at the second-steepest rate in the survey history.

“Companies reported that suppliers were reducing charges given falling demand for inputs. Purchasing activity amongst UK constructors fell for a fifteenth successive month. Reduced buying in turn led to a steep improvement in average vendor delivery times,” read the report.

Senior Economist at Markit, Paul Smith, said: “The latest construction survey further adds to growing evidence of an improving macro-economic landscape in the UK. The sector has been hit particularly hard by the credit crisis, registering unprecedented declines in all types of activity in recent months. However, the underlying trends in the key demand and activity indices are now clearly upward and consistent with much a much slower rate of industry contraction. 

“Particularly eye-catching was the record points increase in the Housing Activity Index, which has now moved up considerably on the series lows seen during the second half of 2008. This augers well for improvements in house-building and house price data going forward,” he said.

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