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U.K. Construction Shrinks Amid Plunge in Orders, Markit Says

The U.K. construction industry unexpectedly shrank in August as new orders dropped at the fastest pace since April 2009, Markit Economics said.

An index based on a survey of purchasing managers fell to 49 from 50.9 in July, Markit and the Chartered Institute of Purchasing and Supply said in a statement on Markit’s website today. The median estimate in a Bloomberg News survey of 12 economists was for a reading of 50, the dividing line between growth and contraction.

The report adds to evidence that the recession extended into the third quarter, with data yesterday showing Markit’s manufacturing index held below 50 for a fourth month. The Bank of England will probably decide at its policy meeting this week to continue the 50 billion-pound ($80 billion) program of gilt purchases it started in July.

“U.K. construction firms are suffering a prolonged downturn in new work and there is little evidence to suggest an imminent rebound in output levels,” Tim Moore, senior economist at Markit, said in the statement. “A construction decline for 2012 overall is statistically baked in the cake.”

The pound pared some of its gains against the dollar after the report, falling as much as 0.1 percent. It traded at $1.5894 at 10 a.m. in London, little changed from yesterday.

The decline was biggest in residential construction, and civil engineering activity contracted for a third month, the report said. Commercial construction fell for the first time in 2 1/2 years.

Persimmon Plc, the U.K.’s largest homebuilder by market value, said Aug. 21 the housing market “remains constrained by the reduced availability of mortgage credit” and will “remain challenging reflecting the wider issues within the economy.”

Olympics Distraction

U.K. retail sales fell in August for the first time in four months as the 2012 Olympic Games distracted Britons and kept shoppers away from London, the British Retail Consortium said today. Sales at stores open at least 12 months, measured by value, dropped 0.4 percent from a year earlier, the London-based trade group said.

The Bank of England will probably hold its target for bond purchases at 375 billion pounds, according to the median estimate of 39 economists in a Bloomberg News survey. Policy makers will also hold the key rate at a record low of 0.5 percent, according to all 51 economists in a separate poll. The decisions will be announced at noon on Sept. 6.

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