UK housing faces crisis as sector hits a 12-month low

The latest Chartered Institute of Purchasing and Supply/Markit survey showed housebuilding activity in September slumped below the crucial 50 mark to hit 45.4 - ending a 12-month run of growth for the sector. (A figure above 50 indicates growth and below 50 is a sign of contraction.)

The gloomy figures come as housebuilders face economic fears and a new "local" planning drive which threatens to leave thousands of schemes in limbo after changes brought in by the new Government. The Bank of England's latest credit conditions survey also warned last week that lenders are toughening up on mortgage terms.

A senior industry executive said: "Mortgage availability is getting tighter and tighter and we can only build homes if somebody is going to be there to buy them when they are built. Also buying a home is the biggest purchase most people make and it is not good for confidence when there is a lot of doom and gloom around about cuts. The current uncertainty over the planning system does not help." Construction overall grew at a faster pace than August as civil engineering and commercial building offset the housebuilding fall, with Cips' overall activity index rising from 52.1 to a better-than-expected 53.8. But the institute's chief executive David Noble warned this might prove "a temporary reprieve", adding: "Once the last of the public-sector budget has been exhausted it is likely that we will see a negative impact from the inevitable cuts."

The rate at which builders are winning new work also slowed to a four-month low, Cips said. The industry is also shedding jobs at the fastest rate since March as cautious firms attempt to keep a lid on costs, and confidence among builders is at its lowest ebb for 18 months. Noble added: "Not since the onset of the recession have we seen optimism in such short supply."

The figures will give more food for thought to the Bank of England's rate-setters who gather this week for their two-day policy meeting, where they are expected to keep interest rates at their present record low of 0.5% and money-printing efforts unchanged at £200 billion. Committee member Adam Posen went public last week with calls for the Bank to print more money to stave off a Japan-style "lost decade" of stagnant growth.

Barclays Capital chief economist Simon Hayes said industry prospects remain "extremely challenging". He added: "Residential housing activity is weakening. A near-term resurgence seems unlikely. On top of this, it is only a matter of time before cuts in public investment start to weigh."