UK construction activity falls to record low
Construction activity in Britain plummeted at a record rate in July, a survey showed today, heightening fears that the once-booming sector is feeling the effects of a slowing economy.
The Chartered Institute of Purchasing and Supply's construction index fell to an all-time low of 36.7 in July. Any reading below the 50 mark is a sign that the sector is contracting instead of expanding.
Housing construction activity also tumbled to a record low of 18.7, the index revealed, marking the eighth consecutive monthly fall and again highlighting the decline of the property market.
These weak figures are further evidence of a sharp economic downturn, with fears growing that Britain is about to enter its first recession (defined by two consecutive quarters of negative economic growth) 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, difficult time. This reinforces our belief that the overall economy is more likely than not to contract in the second half of 2008."
Despite the growing concern of a recession, it is not expected that the Bank of England will take the decision to cut interest rates at its monthly meeting (this Thursday 7 August). With inflation still running above the government target (currently at 3.8% - almost double the target of 2%), it is more likely that the Monetary Policy Committee will opt to maintain rates at 5%.
Monetary Policy Committee
A committee designated by the Bank of England to regulate interest rates for the UK. The MPC attempts to keep the economy stable, and maintain the inflation target set by the government and aims to set rates with a view to keeping inflation at a certain level, and avoiding deflation. The MPC meets on the first Thursday of each month and discusses a variety of economics issues and constitutes nine members: the governor, the two deputy governors, the Bank’s chief economist, the executive director for markets and four external members appointed directly by the Chancellor.
An increase in the general level of prices that persists over a period of time. The inflation rate is a measure of the average change over a period, usually 12 months. If inflation is up 4%, this means the price of products and services is 4% higher than a year earlier, requiring we spend and extra 4% to buy the same things we bought 12 months ago and that any savings and investments must generate 4% (after any taxes) to keep pace with inflation. Since 2003, the Bank of England has used the consumer prices index (CPI) as its official measure of inflation (see also retail prices index).