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%.

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