UK Construction Falls At Record Pace In July

Source : The Business Times, August 5, 2008

Little doubt that sector is now in recession: Global Insight economist

(LONDON) British construction activity fell at a record pace in July, a survey showed yesterday, as the credit crunch takes an increasing toll on the property market.

The Chartered Institute of Purchasing and Supply/Markit construction purchasing manager's index (PMI) fell to 36.7 last month - the weakest reading since the survey began in 1997 - from 38.8 in June. Any reading below 50 signals contraction.

The weak figures add to a growing raft of evidence pointing to a sharp economic downturn, with fears growing that Britain is about to enter its first recession - two consecutive quarters of contraction - since the early 1990s.

'There can therefore be little doubt that the construction sector is now firmly in recession,' said Howard Archer, an economist at Global Insight. 'The construction sector looks to be in for an extended, very difficult time. This reinforces our belief that the overall economy is more likely than not to contract in the second half of 2008.'

However, the Bank of England is not expected to cut interest rates for some time yet because inflation is running at 3.8 per cent, its highest rate in more than a decade and almost twice the central bank's 2 per cent target. The Bank will deliver its latest rates decision on Thursday.

The housing sub-index fell to a series low of 18.7 in July from 25.6, the eighth consecutive fall, the survey showed.

'Housing was again the sick man of the industry, as levels of activity plunged to a record low,' Roy Ayliffe of CIPS said. 'July marked an end to constructors' optimism about recovery, as spirits were knocked by the persistent and rapid decline in new business and activity.'

Housebuilders have been shedding thousands of jobs in recent weeks as mortgage approvals dive to record lows and house prices fall at rates not seen since the crash of the early 1990s.

'With workloads lower and cost pressures remaining intense, jobs in the sector were shed at the fastest rate in over 11 years of the survey's existence,' the report says.

The input price index came in at 79.0 in July, slightly down from 81.1 in June, but still indicating substantial increases in raw materials costs. -- Reuters