The construction industry is braced for tens of thousands of job cuts after Persimmon, the country’s biggest housebuilder, said it would stop building on new sites until market conditions improve.

Building industry sources said that the Northern and Yorkshire regions had already been hit by redundancies and worse was expected as other housebuilders followed Persimmon’s lead and halted new projects.

Some contractors say the downturn could be worse than the early 1990s slump when 500,000 construction workers were laid off between 1989 and 1994.

In the depths of that housing recession Persimmon slowed work on sales sites already open but it did not halt expansion altogether.

In the UK construction offically employs two million people directly and considerably more through the supply chain and casual labour. The CBI said that output in the building materials sector was reported to be lower by 63 per cent of respondents, the most negative view of the sector for 17 years.

Persimmon, Britain’s biggest housebuilder, said that sales in the first four months of the year had fallen 24 per cent. Mike Farley, the chief executive, blamed the slide on unprecedented conditions in the mortgage market and called on the Government to scrap stamp duty for purchases under £250,000 for all first-time buyers for at least a year.

Stamp duty is levied at 1 per cent on purchases between £125,000 and £250,000.

The House Builders Federation is to go further and request that the Government waive stamp duty for all housing purchases under £1 million for a year.

“This is not so much a pricing issue as about mortgage availability. For the first time in my experience there are not enough mortgages for the houses available,” Mr Farley said.

The slowdown in housebuilding is likely to threaten the Government’s target to build three million homes by 2020.

Figures for the last quarter of last year show that housing starts fell 11 per cent in the final quarter to 40,735 as uncertainty over the direction of the housing market, fuelled by the credit crunch, began to take hold.

Mr Farley told The Times: “It is entirely possible the industry could build only 110,000 homes or less this year.”

Persimmon shares fell 6 per cent yesterday and the warning savaged stocks in other house builders.

Barratt Developments’s were harder hit, falling 11 per cent, with speculation that the company may launch a rights issue. Barratt, which acquired Wilson Bowden last year, has also reported falling sales and has been trying to sell its commercial property division.

April is traditionally the busiest time of the year for housebuilders. However, Persimmon said that in the past three weeks it had experienced lower sales volumes and increased cancellation rates.

The housebuilder would typically begin work on 30 sites a month between April and September. It is working on about 500 sites.

Persimmon’s sales so far this year are £1.37 billion, compared with about £1.8 billion last year. “Because of the uncertainties of the global economy and the UK lending environment it is difficult to predict when the market will improve,” the housebuilder said.

It said that its priority was focusing on management of cashflows and close control of costs within the business to ensure that it maintained the strength of its balance sheet.

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