Activity in the construction sector during December shrank at its fastest pace since records began, giving further weight to expectations that the Bank of England will cut the interest rate on Thursday.

The Chartered Institute of Purchasing and Supply (CIPS)/Markit construction index fell for the tenth consecutive month in December to 29.3 down from 31.8 in November, its lowest level since the series began in 1997.

The most considerable decline was registered in housing, while activity in both the civil engineering and commercial sub sectors also fell at record rates during the month, as orders and enquires dry up amid the economic downturn.

The Bank of England's Monetary Policy Committee (MPC) will begin its two-day meeting on Wednesday and it widely expected to cut interest rates as economic conditions in the UK worsen.

The Bank is forecast to reduce borrowing costs to the lowest level in its 314-year history, with at least a half-point cut, to 1.5 per cent, anticipated.

Today's CIPS survey also revealed that sharp falls in new business and total activity prompted companies to reduce their overheads in an attempt to protect profits, resulting in the seventh successive month of payroll cuts.

Roy Ayliffe, director of professional practice at the Chartered Institute of Purchasing and Supply, 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 eleven 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.”

Howard Archer, chief UK & European economist at Global Insight, said the latest data was “simply awful” and that the sector was facing an extremely difficult 2009.

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