PRESSURE on the Bank of England to make a further dramatic cut in interest rates intensified yesterday as a survey showed that activity in the construction industry was at an all-time low.
The Bank's monetary policy committee (MPC) will meet tomorrow and Thursday to decide the next move in their battle to counter the effects of the severe economic slowdown.
Yesterday's survey added to the case for a substantial cut from the curre
nt 2 per cent interest rate, possibly to as low as 1 per cent. A quarter-point cut would take the rate to the lowest in the Bank's 300-year history.
The survey showed that construction firms experienced their tenth consecutive month of decline in December.
Activity in the sector declined at the fastest rate in the history of the Chartered Institute of Purchasing and Supply (Cips) Purchasing Managers' Index (PMI) report for the construction industry.
One analysts described the report as "simply awful", saying housebuilding remaining "particularly depressed" and calling for a three-quarter-point cut in interest rates this week.
The PMI registered a new survey low of 29.3 as activity levels again fell across all three sub-sectors – housing, civil engineering and commercial.
And the level of new orders placed with UK constructors fell at the steepest rate in the survey's history in December, as tender enquiries dried up.
Some companies reported that clients had postponed or cancelled projects in response to the global downturn.
As a result, constructors reduced their input buying at the fastest rate since the survey began in April 1997, while sub-contractors lowered their rates for a fifth month in succession.
The PMI figures were published as a poll showed that almost all of a group of 61 economists expected interest rates to be cut again. Of the economists questioned, 41 said they expected a half-point cut, four said the bank would cut by three-quarters of a point and 14 expect a full point chop or more.
Howard Archer, chief UK economist for IHS Global Insight, said he expected interest rates to fall to a low of 0.5 per cent in the second quarter of 2009, but said it was "far from inconceivable" that interest rates may fall to zero.
He said: "The construction purchasing managers' survey for December is simply awful, indicating that the sector ended 2008 very much on a low and is facing an extremely difficult 2009."
The full article contains 414 words and appears in The Scotsman newspaper.
