UK’s positive start may not last

A positive January for the UK construction industry was highlighted by the fact that it was the first time since last August that all three sub-sectors of civil engineering, commercial-based construction and house building recorded increases in activity, according to the Markit/Chartered Insitute of Purchasing & Supply (CIPS) Construction Purchasing Managers' Index.

The outlook, however, is being described as one of "nervous optimism" and there are fears of "another disappointing year with continued uncertainty where hopes are dashed".

The Markit/CIPS Index found that January's data seasonally-adjusted figures "signalled a solid expansion of activity in the UK construction sector". It felt that an improvement in weather conditions at the start of the year helped boost construction work, while there were also gains in new business.

Despite rises in new orders and activity, however, it found that employment had fallen again.

The Markit/CIPS Index found that companies reported that January's improvement in part reflected a rebound from harsh weather in December, which had contributed to the first fall in activity since February of last year. Looking at the trend in the data over the past two months as a whole, it said the picture was one of very modest growth, well below the strong pace seen in the first half of last year.

Optimism regarding companies' activity levels in 12 months' time rose to an eight-month high, and has improved substantially since hitting a low last September, it found. The overall level of optimism nevertheless regained only half of the ground lost compared to the long-run average recorded prior to the financial crisis.

Ongoing improvements in general economic conditions and a focus on marketing are expected to boost activity. However, some concerns remained over cuts in public spending.

Chris Williamson, chief economist at Markit said, "The outlook appears to be one of nervous optimism. Confidence over future business prospects was at its strongest in eight months, but this still remained relatively subdued compared to the long-run average. This nervousness about future prospects was highlighted by a disappointing further reduction in employment."

David Noble, chief executive officer at CIPS, said, "This is good news for the government as the construction sector seems to have bounced back, suggesting it was the widespread chaos caused by the snow that had such an impact and hampered growth in December.

"Despite the growth of activity, an air of caution persists among construction companies as employment levels continue to fall. Some companies that are doing well are hiring but many more companies are continuing to adjust to lower workloads and deferral of projects. Until growth becomes sustained it is unlikely we will see employment levels rise substantially and consistently."

Looking forward, he said, "At the moment it is hard to tell what 2011 holds for the sector, even though confidence about future activity has risen, it is still weak and many are pinning their hopes on general economic improvements to make that confidence a reality.

"Furthermore, the rise in raw material prices as well as the latest VAT hike will add to the worries for the sector. Bearing this in mind we may be looking at another disappointing year with continued uncertainty where hopes are dashed."