Bad weather and uncertainty hit construction sector recovery

jazConstruction companies find conditions tough for a second month, index of activity in sector shows

A nascent recovery in the construction sector suffered a setback last month after poor weather conditions and uncertain economic conditions hampered growth, according to industry figures.

Construction companies, which employ around 2 million workers and account for 6% of national output, found the conditions tough for a second month after a fall in growth during January, adding to fears that the UK will struggle to emerge from the longest and deepest recession since the second world war.

Housebuilders also suffered a fall in growth after six months of slow and painful recovery.

Persimmon, Britain’s second largest housebuilder, said the outlook was uncertain with an election on the horizon and continued restrictions on mortgage lending by the major banks.

An index of activity in the sector showed that business fell back slightly to 48.5 and refused to break through the critical 50.0 level that indicates increased activity.

Sarah Ledger, an economist at Markit, said employment, which has already fallen by more than 250,000, continued to drop in February.

She said: “The recovery of the wider UK economy is yet to filter through to the construction sector, with February data showing a sustained decline in activity levels over a two-year period. Poor weather conditions also had a detrimental effect on the sector.”

Persimmon said it built almost 9,000 homes last year and hoped to build 10,000 in 2010, but was unlikely to match the 15,000 it constructed in 2007 for several years.

Profits also remained depressed as margins remained tight, said finance director Mike Killoran. Profits of £78m were boosted by £75m of writebacks from provisions booked earlier in the year.

Persimmon builds mainly family homes on private estates. Much of the collapse in new-build house prices has affected flats in multi-occupancy blocks in city centres.

Killoran said much of the larger sites, those with thousands of plots, remained mothballed, while smaller plots were in the process of being completed and sold.

However, £900m of forward sales were only 50% covered by contractual obligations to buy homes.

Economist Howard Archer of IHS Global Insight said the overall impression from the figures was that the construction sector had stabilised.

“Nevertheless, the construction sector still faces a very challenging environment and it is likely to be hit by the government’s need to significantly rein in its spending for an extended period as this is bound to hit expenditure on infrastructure and public buildings,” he said.

The surveyors’ body RICS said margins in the industry would remain depressed for some time: “More needs to be done in the coming budget to unblock bottlenecks in the system to help bring forward new housing completions in the coming years.”

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