Weak construction data builds case for MPC to act

Pressure has increased on the Bank of England to announce more stimulus to boost the UK economy today, after a key survey pointed to a weakening construction sector.

The Markit/CIPS survey of purchasing managers for May showed the slowest growth in the building industry for three months and a pronounced downturn in confidence.

The PMI index, in which any figure over 50 signals expansion, fell from 55.8 in April to 54.4 last month, while the index of positive sentiment fell to its lowest level since last October.

Around a third of respondents thought their output would increase over the next 12 months, while a fifth expected a reduction. The resulting balance signalled that the level of positive sentiment about future business had fallen to its lowest level in six months.

"This is undoubtedly a disappointing survey that raises concerns about the current health of the construction sector and its near-term prospects at least", said Howard Archer, chief UK economist at IHS Global Insight.

The Bank of England's nine-member Monetary Policy Committee voted eight to one against extending its £325bn quantitative-easing programme in May, despite the UK slipping into its first double-dip recession since the 1970s. The MPC is due to announce the decision of its June meeting at midday today.

Recent economic data has pointed to a further weakening of the economy. Last week's Markit/CIPS survey of the manufacturing sector suggested the biggest collapse in activity since the bankruptcy of Lehman Brothers in 2008 and the second largest drop in the survey's 20-year history.

Results from industry surveys of the construction sector have diverged from the official data this year. The Markit/CIPS survey showed output hitting a two-year high in March. Yet figures from the Office for National Statistics showed that construction output shrank by 4.8 per cent over the first quarter of 2012, helping to drag the UK into a new recession.