Promising signs despite another contraction in UK construction sector

(Alliance News) - The UK construction sector remained in negative territory at the start of the new year, though Monday's purchasing managers' index data offered reasons to be optimistic, analysts at Capital Economics said.

The S&P Global/CIPS UK construction PMI fell to 48.4 in January, from 48.8 in December. Falling below the 50.0 no-change mark, shows the contraction in the sector has worsened.

The reading was the weakest in just over two and a half years. Market consensus, as cited by FXStreet, had been expecting an improved reading of 49.5.

With a reading of 44.8, house building was the weakest category in construction output. The rising cost of borrowing and "unfavourable" market conditions led to lower volumes of residential work.

Employment in the sector also fell for the second month in a row, with the pace of job shedding reaching a two-year high. The firms surveyed commented on hiring freezes and non-replacement of voluntary leavers resulting from weaker demand.

"The headline CIPS construction index showed a contraction in activity in January, with the housing index seeing a substantial decline," Capital Economics analysts commented.

"But the forward-looking indicators improved, with future business expectations rising to a six-month high. The upcoming recession will weigh on activity this year, but with no sign of distress in the banking system a prolonged downturn in construction activity looks unlikely."

S&P Global said business activity expectations saw a "swift rebound" in January.

S&P Global compiles the UK construction PMI from responses to surveys sent to around 150 UK construction firms, with data collected between January 12 and 30.

Over in the eurozone, the construction sector remained in decline, albeit at a slower pace.

The construction PMI jumped to 46.1 points in January from 42.6 in December. The latest result signals the smallest monthly reduction in overall construction activity for seven months.

By Eric Cunha, Alliance News news editor

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