By Daniel Hunter

UK construction companies indicated that 2013 started with a moderate reduction in business activity, although the pace of contraction was unchanged since December.

This was highlighted by the seasonally adjusted Markit/CIPS UK Construction Purchasing Managers’ Index (PMI) — which measures overall output in the sector — posting 48.7 in January, unmoved from December’s six-month low. The headline index has registered below the neutral 50.0 value for three months running, and the latest reading was well below the long-run series average (54.1).

Lower construction output in January reflected falling volumes of housing and civil engineering activity. While the decline in civil engineering was the first since August 2012, the latest drop in residential construction was the slowest for three months. There were some reports that snowfall had contributed to reduced output volumes, but the majority of respondents cited weak underlying client demand and a lack of new projects.

Commercial activity was the only sub-sector to buck the wider downward trend in output during January. Latest data pointed to unchanged volumes of commercial activity, which ended a five-month period of contraction.

January data indicated an eighth consecutive monthly fall in new business intakes across the construction sector, which is the longest continuous period of decline since 2008/09. That said, the pace of contraction eased markedly since the previous month and was the slowest since last October.

Decreased new order volumes and lower output contributed to another reduction in input buying in January. Latest data also indicated a sharp deterioration in supplier performance, with vendor delivery times lengthening to the greatest degree in three months. Construction firms attributed longer supplier lead times to a combination of low stocks at vendors and disruptions caused by snowfall at the start of 2013. Average cost burdens increased again in January, but the rate of inflation was the slowest for six months and well below its long-run trend.

Meanwhile, survey respondents signalled an upturn in their confidence about the outlook for business activity over the next 12 months, with sentiment improving further from the near-four year low seen in November. Although the degree of optimism was still weak by the survey’s historical standards, the latest reading was the highest since last July. This in turn supported employment levels in January, with higher construction workforce numbers reported for the first time in four months.

“January’s survey results are yet another indicator of the severe underlying fragility across the UK construction sector, with output failing to rise in any of the three monitored sub-sectors for the first time since last summer," Tim Moore, Senior Economist at Markit and author of the Markit/CIPS Construction PMI, said.

“Snowfall at the start of the year may have disrupted output to some degree, but unfavourable weather outside is clearly far down the long list of difficulties afflicting construction companies at present. Weakness was again most prominent within the house building sub-sector during January, while civil engineering swung back into contraction after a four-month period of growth.

“Despite the ongoing downturn in output, there was some let up in the pace of new order decline, as well as a resilient employment trend in January. Looking ahead, construction firms reported improved optimism about the business outlook, although much of this appeared to rest on hopes that the chorus of calls for greater public sector investment spending starts to come to fruition.”

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