Finance News

Drop in Construction Increases Chances of more Quantitative Easing

The results from the construction sector in August show a sharp drop in the rate at which new projects are being created. Construction is a big part of the UK economy, creating plenty of jobs and seeing large amounts of money move around, stimulating spending from many members of the public.

Although manufacturing was providing some good news through August, compared to its previous falls at least, it was hoped that new building projects would help to keep the UK economy on course, something that it appears is not the case.

Senior economist at Markit, Tim Moore, said that “UK construction firms are suffering a prolonged downturn in new work and there is little evidence to suggest an imminent rebound in output levels,” which, if it turns out to be the case, is very bad news indeed. He has added that “the latest drop in new orders was the fastest since the sector was in full scale retreat in early 2009.”

Because of this, the Monetary Policy Committee are likely to bring back more quantitative easing when they meet this week, meaning the Bank of England will give banks more money to inject into the economy through lending. However, many people are sceptical of whether this approach works.

Another possibility is that the MPC will recommend lowering the base rate of interest to stimulate spending and investment, but Howard Archer, an in-house expert at economic forecaster IHS Global, thinks this is unlikely: “We remain sceptical that the Bank of England will take interest rates down to 0.25 per cent given ongoing serious doubts within the monetary policy committee that such a move would have a net overall beneficial impact.”

This is just the latest in a series of blows to the economy, and how the Bank of England and government will react is yet to be seen, but it seems clear there is still plenty of financial woe ahead of us.