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August 4, 2008    

UK construction activity slumps to record low

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by Kay Murchie

A survey has revealed that activity in the construction sector plummeted to a new low during July.

The Construction Managers’ Index, which measures trends in the housing, commercial and civil engineering sector, showed that a reading of the industry fell to a low of 36.7 from 38.8 in June, this represented the lowest figure since records began in 1997.

Meanwhile, the worst decline was noted in housing, where activity declined to just 18.7 during July, the eighth consecutive monthly fall.

Commenting on the figures, Howard Archer, an economist at Global Insight, said evidence shows that the construction sector is now firmly in recession.

The construction sector looks to be in for a very difficult time which reiterates our belief that the economy overall is more likely than not to contract in the second half of this year, added Mr Archer.

The figures will add to the already heightening fears of a recession as figures today from the CBI and Experian revealed that confidence among UK manufacturers has taken a dive throughout the UK.

The index of business optimism fell to -40 in the three months to July, this represented the weakest figure for 7 years.

Furthermore, a survey carried out by Lloyds TSB revealed that two out of three people believe that general employment prospects were worse than a year ago.

The figures are released just days before Bank of England’s Monetary Policy Committee (MPC) is due to announce its decision on interest rates.

Economists believe that the Bank will leave interest rates unchanged at 5% in a bid to manage runaway inflation, which is running at 3.8%, nearly double the 2%.

In the meantime, households remain under financial pressure as Centrica, which owns British Gas, announced its intention to increase gas bills by 35%.

Last week, the latest Nationwide survey revealed that UK house prices have fallen for the ninth consecutive month. This represents the biggest annual drop since the building society commenced its survey in 1991.

Credit ratings agency, Standard & Poor said if property prices continue to fall at their current pace, around 1.7 million people could be pushed into negative equity in the next 12 months.

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