Housebuilding slump hits construction sector

by | Jul 6, 2023

(Sharecast News) – Construction output fell sharply in June, a closely-watched survey showed on Thursday, as higher mortgage rates hit house building.
The S&P Global/CIPS UK Construction Purchasing Managers’ Index came in at 48.9 in June, down from 51.6 in May and below consensus, for 51.0. It was the first time the index had registered below the neutral 50 threshold in five months.

A reading above 50 indicates growth while one below it suggests contraction.

Respondents pointed to a “steep and accelerated downturn” in house building, alongside the first reduction in new orders since January.

Civil engineering was the best performing segment, at 53.1, while commercial building was 53. But residential work tumbled at the fastest rate since May 2020, to 39.6 from 42.7 a month earlier.

The employment index, meanwhile, fell to 50.4 from 52.6 in May.

Tim Moore, economics director at S&P Global Market Intelligence, said: “Weaker housing marketing conditions in the wake of higher borrowing costs acted as a major constraint on UK construction output in June.

“Aside from the lockdown-related fall in house building, the rate of decline was the fastest for just over 14 years. Survey respondents widely commented on cutbacks to new residential building projects and more caution among clients in response to rising interest rates.”

John Glen, chief economist at the Chartered Institute of Procurement & Supply, said: “Looking ahead, there are few reasons to be cheerful as optimism fell to its lowest level since January.

“A large blot on the landscape was the fall in employment growth. With interest rates at the highest for 15 years and inflation four times over the Bank of England target, the sudden reduction in construction sector hiring is one of the red flags facing the UK economy at the moment.”

Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said: “June’s PMI suggests that interest rates now have risen far enough to push the sector into a renewed downturn.

“We also continue to think that the construction sector probably is struggling to a greater extent than implied by S&P’s survey, given that it doesn’t tend to reflect changes in repair and maintenance work.

“Past experience suggests that layoffs will come through over the coming months, if activity continues to fall at its current pace for a few more months. Encouragingly for the Monetary Policy Committee, the downturn in activity also is helping to bear down on prices and wages: the input price index fell below 50 for the time since January 2010.”

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