Construction Industry Survey Reveals Sudden Signs Of Slowdown

Britain's construction industry grew at its slowest pace for six months in August after a decline in housebuilding, according to a key report on the sector.

A survey of purchasing managers showed the construction sector lost momentum after homebuilders scaled down work and revealed that new orders for the next three months have slumped.

Gloomy PMI data was matched by a sharp drop in house prices, according to the Nationwide index for August. The building society said prices fell at an increased rate of 0.9% month-on-month after a drop of 0.5% in July and flat prices in June.

Some analysts predict a drop in property values next year as consumer confidence falls and the economy stagnates, while others believe the dearth of housebuilding will limit supply and maintain annual price inflation at around 4% to 5% over the next five years.

The slowdown in construction follows confusion among housebuilders over the government's plans for the sector. In July the communities secretary, Eric Pickles, scrapped centralised plans for 3m new homes, telling councils they must draw up their own proposals for agreeing planning applications. Pickles said he wanted to kickstart the sector by throwing off the shackles of "Stalinist" centralised planning.

Government critics said radical changes to planning rules and cuts in subsidies to housing associations and local authorities had hurt an already beleaguered construction sector, which is now building fewer homes than at any time since 1924.

Official data last month showed British construction output had jumped 8.5% between April and June, its best showing since 1982. But the more forward-looking purchasing managers' index (PMI) suggests this pace will fall back and could slow further.

The coalition government's emphasis on tackling the public deficit has also led building firms to conclude that spending on infrastructure and public buildings will be severely curtailed over the coming years.

The Markit/Chartered Institute of Purchasing and Supply Construction PMI slipped to 52.1 in August from 54.1 in July. The figure was below the consensus forecast of 53.2 and more than six points below a peak in May. Employment within the UK construction sector decreased for a second consecutive month.