UK construction falls at record pace in July

August 5, 2008
UK construction falls at record pace in July
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.