Construction shows record contraction in November

Source: Reuters

Date :02/12/2008 17:58:46

The construction sector shrank last month at its fastest pace since records began a decade ago, building pressure on the Bank of England to cut rates by at least another percentage point on Thursday.

By Christina Fincher and David Milliken

Tuesday's PMI purchasing managers' survey for construction follows an equally bleak reading on Monday from its manufacturing equivalent, which helped drive sterling to its biggest one-day fall against the dollar since 1992.

The pound weakened by almost a full cent to $1.4773 after the Chartered Institute of Purchasing and Supply/Markit construction index fell to 31.8 from October's 35.1.

Grim data means economists polled by Reuters have revised their expectations over the past week to predict that the Bank of England will cut rates to 2 percent from 3 percent on Thursday.

Former monetary policy committee member Willem Buiter said the Bank needed to repeat last month's 1.5 percentage point cut, which took rates to their lowest level since the 1950s.

Falling property prices and a shortage of credit took an increasingly heavy toll in the construction survey, when new orders, output, employment, and buying activity all contracted at record rates.

November was the ninth straight month the index has been below 50, the level which marks contraction, and the lowest since the series began in 1997.

Housing construction recorded the sharpest decline, but no sector was spared. Civil engineering, the best performing sector in recent months, also recorded its sharpest contraction since the survey began.

"House building and commercial development have virtually ground to a halt and even infrastructure projects appear to be feeling the pain," said Simon Rubinsohn, chief economist at the Royal Institute of Chartered Surveyors.

Property prices have fallen 15 percent over the past year -- faster even than during the recession of the early 1990s -- and show no sign of stopping.

The government has taken unprecedented action to keep the banking system afloat but it is struggling to get banks lending again. Recent interest rate cuts from the Bank of England have also done little so far to turn the tide of economic pessimism.

"Public-sector projects should provide some offset to this bleak picture with the government announcing in the pre-budget report an acceleration in capital spending to the tune of 3 billion pounds for the coming year," said Rubinsohn.

"Even so, the value of construction output is likely to fall in 2009 with unemployment rising sharply in all trades."

(Editing by Stephen Nisbet/Victoria Main)

LONDON (Reuters)