UK construction gloom adds to pressure on Bank to restart QE

Output contracted in June for construction sector. Picture: Getty
Output contracted in June for construction sector. Picture: Getty
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BRITAIN’S construction sector has dealt another blow to hopes of a swift return to economic growth, as the latest purchasing managers’ index (PMI) reveals activity fell sharply in June.

The news, combined with other downbeat business surveys in recent weeks, will heap pressure on Bank of England officials to launch a fresh round of money printing at Thursday’s rate-setting meeting. Analysts expect a further £50-75 billion of quantitative easing to be announced.

The key PMI business output index slumped to 48.2, down from 54.4 in May and below the critical 50 level that separates growth from recession.

House-building activity and civil engineering both contracted markedly, according to respondents, while growth in commercial activity slowed to a 28-month low and was marginal.

The reading came in below economists’ expectations, while forward-looking elements of the survey also weakened appreciably in June.

The Queen’s Diamond Jubilee and bad weather played a part in the decline but the survey also revealed weaker underlying business conditions, the lowest confidence levels since October and the first fall in workforce numbers since February. Howard Archer, chief European and UK economist at IHS Global insight, said: “This is a further blow to hopes that the overall economy avoided further contraction in the second quarter.”

He said that, although construction only accounts for some 7 per cent of UK output, it had been hoped that the economy would be helped in the second quarter by a bounce back in the sector after it suffered a large quarter-on-quarter contraction in the first three months.

Data for Britain’s dominant service sector released today is expected to reveal a weakening picture following readings of 53.3 in both May and April.