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Stagflation continues to hit construction sector

The construction industry's activity fell by a record amount last month, although civil engineering remained the strongest-performing sector, while costs inflation remained high.

The report, by the Chartered Institute of Purchasing & Supply (CIPS), gives a figure for the state of the industry, the Construction Purchasing Managers' Index. A figure of 50 would show growth or contraction.

The PMI index fell to 38.8 in September from 40.5 in August, signalling a rapid monthly deterioration in industry activity.

The housing and commercial sectors fares the worst, at 26.1 and 36.4, respectively. Civil engineering showed reduced contraction this month. The seasonally adjusted New Orders Index posted its second lowest reading in the survey history and proof of substantial contraction.

Costs inflation continued to be high, with an index of 69.5, but had eased from June's peak. The latest cost increases were due to higher raw material prices, particularly for energy.

Commenting on the report, Director of Professional Practice at the Chartered Institute of Purchasing and Supply Roy Ayliffe said: "As the volatility of the world’s financial markets reached fever pitch in September, purchasing managers reported a fall in activity levels throughout the UK construction economy, as companies laid off staff at a considerable pace and sharply reduced buying activity.

"Fierce competition for new contracts persisted and intensified, resulting in yet more fruitless tenders and diminishing order books.

"Housing again took a battering and was joined by the commercial sub-sector in terms of bleak performance. In the face of myriad obstacles, including rocketing energy prices, UK constructors were dejected and their confidence about the future performance of the sector hit a record low," he said.

Economist at Markit Gemma Wallace said: "There can be little doubt that the UK construction economy is now mired in a recession, and one that is likely to prove difficult to recover from.

"Although there were promising signs in August of an end to the downward trend in the key indexes, September figures showed a renewed slide. Total industry activity and orders have now fallen for seven straight months, leading to a record contraction of employment in September. That said, there remains some hope of a recovery in the civil engineering sector where the rate of decline in activity levels slowed again, and to just a marginal pace," she said.

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