By Stewart McIntosh

OUTPUT in the UK construction sector is in free fall, with July seeing the biggest drop since comparable records began, according to the Chartered Institute of Purchasing and Supply (CIPS). Unsurprisingly, firms have reacted with the biggest job cuts seen in the last 11 years.

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

Amid fears that the economic slowdown will continue and bring further 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.

That is well short of the 50 mark which separates expansion from contraction. July was 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 index has now shown eight consecutive months of decline in housebuilding activity – with the rate of the fall accelerating dramatically.

The CIPS construction survey also showed the rate of incoming work for the sector falling at its fastest pace in the past 11 years. Falling workloads have reduced construction firms' utilisation of sub-contractors

and their purchasing activity at record rates.

Meanwhile, the latest construction market figures released by the Office for National Statistics (ONS), also confirm the worst fears, according to RICS senior economist David Stubbs.

"These figures provide another clear signal that the construction industry is in recession,” Stubbs said. “The on-going collapse of orders for new private homes, accompanied by severe declines in orders for commercial and industrial buildings, makes it increasingly likely that the construction industry will continue to shrink throughout this year and into 2009.

"Employment levels are sure to drop further."

The ONS estimates that orders in the 12 months to June 2008 fell by 7 per cent, compared with the previous 12 months. During the second quarter of 2008 orders fell by 21 per cent compared with the same period in 2007 – and by 8 per cent compared with the first quarter of 2008.

There were decreases across all sectors, apart from public non-housing and public housing.