UK construction slumps

City A.M. Reporter
British construction activity fell at its fastest pace in two-and-a-half years in June as underlying business conditions worsened and an extra public holiday hit output, a survey showed.

The gloomy data will make grim reading for the government and Bank of England who are facing increasing calls to act and boost growth in an economy that fell back into recession at the start of the year.

The Markit/CIPS Construction Purchasing Managers' Index (PMI) sank to 48.2 from 54.4 in May, its lowest reading since December 2009 and falling below the 50 level which separates growth from contraction and missing forecasts for a more modest fall to 53.0.

"The UK construction sector moved back into reverse gear in June with output falling at its fastest pace since the end of 2009," said Tim Moore, senior economist at data compiler Markit.

The data comes the day after figures showed the manufacturing sector contracted for the second month running in June and ahead of a Wednesday release that is expected to show only tepid growth in the dominant service sector.

With economists seeing marginal growth ahead at best, and only a mild improvement next quarter from London's hosting of the Olympic Games, the Bank is widely seen restarting its quantitative easing (QE) asset purchase programme.

The Bank is expected to top up the £325bn of cash it has already pumped into markets with another 50 billion when it meets on Thursday as falling inflation gives it more scope to support the battered economy.

Cost pressures eased markedly, Markit said, giving the central bank more room to manoeuvre as increased costs for energy and raw materials were offset by lower fuel prices.