UK construction sector activity plummeted in December at the quickest pace since comparable records began in 1997, as new orders tumbled at the fastest-ever rate, firms axed staff, and sub-contractors slashed their prices, a key survey showed yesterday.

The dire construction survey, from the Chartered Institute of Purchasing and Supply, was viewed by economists as increasing further the pressure on the Bank of England's Monetary Policy Committee to deliver another large cut in UK base rates on Thursday.

A poll published yesterday by Reuters showed 59 of 61 economists expect a cut of at least half-a-point, from the current level of 2%, on Thursday. Fourteen are predicting a reduction of a full percentage-point or more, with four expecting a move of three-quarters of a point, and 41 forecasting a half-point reduction. Two predict no change.

Any move below 2% will take UK base rates to their lowest level since the Bank of England was created in 1694. Base rates were last as low as 2% in the period from 1939 to 1951. Base rates were at 5% as recently as early October. However, the sharp cuts since then have failed to kick-start lending by banks to individuals and businesses.

Among the three construction sub-sectors surveyed by CIPS, housebuilding activity suffered the steepest fall last month. But the troubles were widespread, with civil engineering and commercial posting their worst monthly falls in activity since 1997.

The slump in new orders, the most forward-looking indicator, bodes badly for construction sector activity in coming months. Activity in the construction sector has, according to CIPS, now fallen for 10 consecutive months.

Construction firms reported that tender inquiries had dried up as a result of the economic outlook. Companies also noted their clients were postponing, or cancelling, planned projects as fears of a prolonged economic downturn mounted.

CIPS' purchasing managers' index for construction, a composite measure of activity in the sector, fell to a survey-low of 29.3 in December. This is way adrift of the level of 50 which separates expansion from contraction.

Construction companies cut their workforces for a seventh consecutive month in December - citing unfavourable market conditions against a backdrop of rapid deterioration in the domestic and global economies.

December saw the second-fastest fall in the use of sub-contractors by construction companies since the survey began in 1997.

Sub-contractors, which suffered a sharp rise in their availability, cut their rates for a fifth consecutive month in December and at the fastest pace since CIPS' construction survey began. Roy Ayliffe, director of professional practice at CIPS, said: "The New Year spirit was decidedly muted among UK constructors amid reports of ever-toughening market conditions. Further falls in global demand resulted in the most severe retrenchment in the PMI's 11-year history. Once again, the housing sector bore the brunt of the crisis, as purchasing managers reported significant reductions in new business.

"Amidst a climate of doom and gloom, firms were forced to axe more jobs in preparation for what is set to be another year of trouble and turmoil."

The price of construction companies' raw materials, particularly steel, continued to fall in December.

Howard Archer, chief UK economist at consultancy IHS Global Insight, predicted the construction sector would remain in dire shape in spite of government attempts to provide a fillip by bringing forward major public works projects.

Archer said: "The (construction) purchasing managers' survey indicates that the construction sector's recession deepened markedly in the fourth quarter, after output contracted by 0.2% quarter-on-quarter in the third quarter of 2008 and by 0.7% in the second quarter.

"With housing market activity and prices likely to remain depressed for some considerable time to come and the commercial property sector in dire straits, the construction sector looks set for extended weakness despite some support from the government bringing forward some public construction activity and infrastructure spending as part of its fiscal stimulus package."

He added: "The deepening construction downturn reinforces belief that the overall economy suffered significantly sharper contraction in the fourth quarter of 2008 after GDP (gross domestic product) fell by 0.6% quarter-on-quarter in the third, and reinforces already intense pressure on the Bank of England to cut interest rates aggressively further on Thursday."

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