Demand for new homes plunged by 27 per cent during the first quarter of 2008, leading an 8 per cent decline in overall orders for new construction.

The Office for National Statistics (ONS) said today that demand for new construction fell from £8.3 billion in the fourth quarter of 2007 to £7.7 billion during January to March this year.

Falling orders in private housing were the most pronounced, declining from £1.9 billion in the final three months of last year to £1.4 billion in 2008. Compared to the first quarter of last year, orders fell by 29 per cent at the beginning of 2008.

Last week, Persimmon, the UK's largest housebuilder, revealed that it would stop construction on new sites after sales fell by 24 per cent during the first four months of the year.

Taylor Wimpey revealed that orders for new homes had slumped by 26 per cent so far this year, which it blamed on the restrictions that the country's worsening mortgage drought is placing on first-time buyers.

The ONS also said that public housing and housing association orders declined by 27 per cent compared to the fourth quarter and by 36 per cent on the first three months of 2007.

It also emerged today that the UK manufacturing sector continued to contract in April. The monthly purchasing managers index from the Chartered Institute for Purchasing and Supply dipped from 51.3 to 51.0 in April, nearer to the 50 threshold that marks the difference between expansion and contraction. However, while activity declined, it still remained above analysts' expectations of a 50.7 decline.

The output price index rose from 60.6 in March to 61.9, while the input price index increased from 76.7 to to 78.5 — the second highest since the surveys began, as the cost of raw materials continued to rise.

The ONS figures also showed that private and public infrastructure orders rose by 24 per cent on the final three months of 2007. The ONS said: "These large rises were caused by high levels of road orders in February 2008."

Public non-housing orders also rose, by 20 per cent on the last quarter of 2007 and by 26 per cent on the same three months of last year.

The ONS said: "These large rises were caused by high levels of education, health and office orders in January 2008."

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