Fears are growing that the economy is heading deeper into recession.
Britain’s building sector shrank at its fastest pace in three years in June, adding to fears that the economy is heading deeper into recession and increasing the likelihood that the Bank of England will restart its money printing programme later this week.The Markit/CIPS Purchasing Managers’ Index, a monthly survey of construction firms, plummeted to 48.2 in the month, down from 54.4 in May, with any figure below 50 indicating a contraction in activity.
Some of the survey respondents said the extra bank holiday in June had artificially depressed activity, but most also pointed to thin order books. “Temporary factors should not be overplayed, as the latest figures reveal worsening underlying business conditions within the sector,” said Tim Moore of Markit.
Civic engineering and housebuilding were especially hard hit, according to Markit. Employment in the sector, which makes up 7% of the economy, also fell as construction projects came to an end. Expectations of new work showed an alarming slide. Firms’ assessments of future output dropped to their lowest levels in eight months.
A 4.9% contraction in the building sector in the first quarter of this year was largely responsible for pulling the UK economy into its first double-dip recession since the 1970s.
The overall economy contracted by 0.3%, following a 0.4% decline in the final three months of 2011. City analysts increasingly expect the second quarter of 2012 to register a further contraction. The first estimate of activity over May to June will be released by the ONS at the end of this month.
Yesterday the Markit snapshot of the manufacturing sector in June also showed a contraction. Tomorrow Markit will release its snapshot of the all-important services sector, which accounts for 75 per cent of the UK economy.
The Treasury is believed to be preparing to launch measures to boost the construction sector. The CBI has called on the Government to underwrite new infrastructure projects to encourage the private sector to invest.
The Bank of England’s monetary policy committee voted narrowly against extending its £325 billion quantitative easing programme in June, but said further stimulus would be warranted if the economic situation worsened.
Analysts expected a further £50 billion to £75 billion of asset purchases to be announced by the MPC on Thursday.
