Plummeting housebuilding activity sent overall UK construction sector output falling in July at the fastest pace since comparable records began in 1997, and firms reacted with the biggest job cuts seen in this 11-year period, a key survey showed yesterday.

The Chartered Institute of Purchasing and Supply's survey underlined the rapid deterioration in conditions in a construction sector hammered by the global credit crunch.

Housebuilding remains by far the worst-performing sub-sector of construction. However, the survey also shows commercial construction activity falling at a record pace, and the civil engineering sub-sector is also declining.

And, amid fears that the economic slowdown will continue and bring further significant job losses in construction, firms' confidence fell to its lowest level since CIPS began its monthly survey of the construction sector in 1997.

CIPS' headline purchasing managers' index for construction, a composite measure designed to provide a single-figure measure of the trends in the sector's output, dropped from 38.8 in June to 36.7 last month.

This is way adrift of the level of 50 which separates expansion from contraction, and marked the fifth consecutive month of decline in overall UK construction sector activity.

The housing activity index plummeted to just 18.7 - a massive 31.3 points below the no-change mark of 50. This 18.7 figure was described as "pitiful" by Howard Archer, chief UK economist at consultancy Global Insight.

This index has now shown eight consecutive months of decline in housebuilding activity - with the rate of fall accelerating dramatically.

At the margin, yesterday's survey from CIPS would seem likely to add to the case for the Bank of England's Monetary Policy Committee to hold UK base rates at 5% when it ends its next two-day monthly meeting at noon on Thursday, in spite of intensifying inflationary pressures.

The CIPS construction survey also showed the rate of incoming work for the sector falling at its fastest pace since 1997.

CIPS said that falling workloads had reduced construction firms' utilisation of sub-contractors and their purchasing activity at record rates.

It added that "constructors' woes were further compounded by another substantial increase in raw material costs".

Archer noted CIPS' headline construction PMI had declined from 56.0 at the end of last year and from a peak of 64.8 in August 2007.

He pointed out the housing activity index had tumbled from 40.3 in April, a point which is more than halfway through the current phase of contraction.

Archer said: "Overall construction activity was dragged down once again in July by exceptionally weak residential activity. Indeed, the housebuilding index indicated that activity in the (sub-)sector contracted massively in July, and for the eighth month running. Specifically, the index dropped to a pitiful, record low of 18.7 in July, from 25.6 in June, 32.7 in May and 40.3 in April.

"Housebuilders are being hit extremely hard as housing market activity and house prices crumble in the face of elevated affordability pressures, very tight lending conditions and low buyer interest."

Archer noted that preliminary gross domestic product data for the second quarter, from the Office for National Statistics, had pointed to a 0.7% quarter-on-quarter decline in UK construction sector output.

He added: "The purchasing managers' survey (from CIPS) suggests that the contraction could be even deeper in the third quarter.

"There can therefore be little doubt that the construction sector is now firmly in recession. Indeed, with housing market activity and prices continuing to head south, the commercial property sector in dire straits and government finance for infrastructure projects limited, the construction sector looks to be in for an extended, very difficult time.

"This reinforces our belief that the overall economy is more likely than not to contract in the second half of 2008, even allowing for the fact that the construction sector's share of national output is relatively limited at some 6%."

The weak construction survey, together with worries about the UK banking sector, weighed on the pound yesterday.

Sterling was last night down about one cent against the US dollar at $1.9624. The euro was more than half-a-penny stronger against sterling at 79.38p.