Housebuilding slumps amid property market fears

Housebuilding activity slumped for the first time in a year last month as construction firms pulled back amid fears over the property market.

The latest Markit/CIPS Purchasing Managers' Index (PMI) survey - where a reading above 50 indicates growth - showed activity in the residential construction sector fell to 45.4 in September.

This ended 12 months of expansion and marked the lowest reading since July 2009.

A better performance in the civil and commercial construction sectors helped overall construction activity increase to a better-than-expected 53.8 in September from 52.1 in August.

But widespread concerns over the impact of public spending cuts sent confidence among firms plunging to an 18 month low, according to the data.

The rate of increase for incoming new business eased for the fourth month running and jobs were cut at the fastest pace in six months.

David Noble, chief executive of the Chartered Institute of Purchasing & Supply (CIPS), said: "Whilst the construction sector is still growing, a sharp fall in confidence suggests work in the pipeline may not be so strong.

"Not since the onset of the recession have we seen optimism in such short supply."

Today's report also warned that the more buoyant conditions in the civil and commercial sectors were largely thanks to "eleventh-hour budget spending" by the Labour government and may not last once public sector costs are slashed.

The drop in housing market activity highlights the shift in Britain's property market in recent months.

Nationwide house price figures last week showed the quarter-on-quarter growth rate turned negative for the first time since May 2009, with prices falling by 0.9% during the three months to the end of September.

Developers are worried the Government's public sector jobs cull will put further pressure on prices and demand, which is seeing them rein in their activity.

The September construction report follows CIPS manufacturing figures on Friday showing growth slowed to a 10-month low in September, which reinforce expectations for Britain's recovery to have slowed in the past three months.

Howard Archer, chief economist at IHS Global Insight, said: "While the construction sector only accounts for 6.3% of national output, the apparent substantial slowdown in activity over July to September adds to the evidence that growth slowed markedly in the third quarter."

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