Infrastructure project plans must turn into live work to help ease strain on construction sector, says expert

Analysts Markit and the Chartered Institute of Purchasing and Supply have reported the "sharpest drop in construction output" since June last year was recorded in its December Construction Purchasing Managers' Index (PMI). The PMI figure for December fell to 48.7 from 49.3 in November, according to the figures.

PMI data is collected from a survey of more than 170 purchasing executives working within the construction sector. A PMI score above 50 indicates growth while a score below 50 indicates contraction. The average figure over the decade leading up to the global financial crisis in 2008 was 56.3.

"Although some survey respondents suggested that bad weather in December had resulted in unusually long seasonal shut downs at their units, the majority of companies cited weak underlying demand at the end of 2012," according to a statement by Markit.

The survey revealed that construction activity in the house building sector fell for the seventh consecutive month and was "by far the weakest performer of the three broad construction sub-categories". The other two categories monitored in the survey were commercial activity and civil engineering works. Commercial activity fell during December, but civil engineering work experienced growth, according to Markit.

According to the survey results for December, construction companies reported a drop in the number of new jobs they have obtained contracts for the seventh consecutive month. The fall in number of new contracts recorded was accompanied by a further fall in employment levels in the construction industry, Markit said.

"The rate of contraction accelerated markedly over the month and was the fastest since April 2009," Markit said. "Anecdotal evidence widely cited strong competition for a shrinking pool of new invitations to tender amid a background of subdued business and consumer confidence. A lack of new work to replace completed projects in turn contributed to a drop in construction employment levels for the third month running in December."

Purchasing managers also revealed that business confidence for the year ahead is "highly subdued".

Construction law expert Mark Job of Pinsent Masons, the law firm behind Out-Law.com, said that the findings would put pressure on Government to help improve conditions in the construction sector.

"The December index reflects a dismal year for the UK construction industry and it is hard to believe it will get any easier in 2013," Job said. "Many are sceptical that house building will increase despite predictions in the Bank of England’s latest Credit Conditions Survey of more money becoming available for mortgages in 2013."

"Whilst housing activity was by far the worst performer, it is clear that the market is weak across the sector. December in now the seventh consecutive month that volumes of incoming work have shrunk. For much of the industry, the larder is now looking pretty bare and simply, as current projects finish they are not being replaced by new work," the expert said.

"As if it were needed, these latest figures only increase the pressure on Government to provide more support and more initiatives to stimulate activity. At the very least, the need to turn the projects promised in the Chancellor’s Autumn statement into live work sooner rather than later, could not be more acute," Job added.

In his Autumn Statement, George Osborne announced that the Government would spend an extra £1 billion on roads, including four major new schemes, and would also provide £270m to fund improvements in further education colleges, £1bn for schools, to include the building of 100 new free schools and academies, and would also invest in ultrafast broadband in 12 additional cities. Osborne also said he had set aside an additional £600m for scientific research infrastructure.

Osborne said money would be redirected into infrastructure spending from Whitehall efficiency savings and said the Government would help finance the extension of the London Underground's Northern Line to Battersea.

However, at the time of the Chancellor's announcements infrastructure expert Fraser McMillan of Pinsent Masons questioned whether money pledged to fund the infrastructure projects would have a quick enough impact to provide much-needed economic stimulus.

"Many of these projects have long lead-in times, and of the £5bn promised for projects in the last Statement, only £750m has actually been spent," McMillan said. "That means money is not making its way into the real economy fact enough, hitting the construction industry in particular - with a consequent impact on GDP."