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Construction companies cut more jobs as orders fall for a fifth successive month


New construction orders fell for a fifth successive month, according to figures, leading to further job cuts in the sector.

Although the Construction Purchasing Managers' Index (PMI) (3-page / 83KB PDF), by analysts Markit and the Chartered Institute of Purchasing and Supply, showed slight growth in October; employment in the sector fell at the steepest rate since August 2011. The analysts attributed this to a lack of work to replace completed projects.

PMI data is collected from over 170 purchasing executives working within the construction sector. The score for October rose to 50.9 from 49.5 in September, indicating "fractional" growth. A PMI score above 50 indicates growth while a score below 50 indicates contraction. The average figure over the decade leading up to the global financial crisis in 2008 was 56.3.

Construction law expert Mark Job of Pinsent Masons, the law firm behind Out-Law.com, said that although news of further job losses in the sector was unsurprising the figures were "a real concern".

"Looking ahead, clearly the need for new infrastructure in the UK and the recent announcement of Government initiatives aimed at stimulating the markets give some cause for optimism," he said. "Even so, the immediate uncertainties over project flow, and the continuation of incredibly tough trading conditions, make it easy to see why the UK's contractors are struggling to wait it out. It is clear that nothing short of a real increase in activity levels in the near future is what is really needed if the UK construction industry is to retain the skills and capacity to deliver, come the day."

According to the data, the highest levels of construction output during October were seen for civil engineering projects while residential building was the weakest performing sector. Commercial activity also dropped in October, although at a "marginal" pace.

The figures showed new orders continued to fall, resulting in the longest period of falling orders since 2008/09. Respondents to the survey attributed this to "squeezed budgets and worries about the economic outlook" among their clients. Although the fall in staffing levels was "much less marked" than in the immediate aftermath of the economic crisis, the latest fall was the fastest since August 2011. Use of sub-contractors also continued to decline.

"October's survey indicates an improved trend in UK construction output compared to the declines seen through this summer," said Tim Moore, the senior economist at Markit who produced the report. "However, the bigger picture remains bleak given ongoing falls in new orders alongside renewed job cuts across the sector over the month. Construction firms are seeing the most protracted period of new business losses since 2008/09, meaning an escalated shortage of work to replace completed projects."

He added that the outlook among businesses for the year ahead remained "relatively subdued".

"Survey respondents cited weak spending patterns and squeezed budgets among clients," he said. "Some construction firms also noted greater worries about competition for new work amid signs of over capacity in parts of the industry."

Infrastructure law expert Graham Robinson of Pinsent Masons said that a recovery in the sector was unlikely for "at least a further 12 months", as forecasts for business investment and capital investment did not look encouraging for 2013.

"Any upturn is likely to be led by housing, although the most recent data is not encouraging," he said. "Last quarter's ONS data showed that construction output fell by a further 2.5%, and the data from this latest PMI survey shows that a recovery for construction is unlikely for at least a further 12 months, as funding is still not resolved. Public sector construction output is down by 21.9% year-on-year, and is likely to be lower still as public sector cuts continue; and infrastructure is also down by 18.4% but has shown some modest signs of growth."

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