UK construction growth slows as housebuilding drops

by | Sep 6, 2023

(Sharecast News) – UK construction activity rose only marginally in August, as growth slowed from the previous month, with housebuilding struggling and new orders dropping at their fastest rate in over three years.
The S&P Global/CIPS UK construction purchasing managers’ index (PMI) fell to 50.8 last month, down from 51.7 in July, signalling only a slight increase in overall construction output.

Any reading above 50 indicates an expansion in activity. The consensus estimate was for a reading of 50.7.

Commercial building was strong, at 54.2, holding close to July’s five-month high of 54.4, while civil engineering growth slowed from 53.9 to 52.4, its lowest since April. However, housebuilding weakened from 43 to 40.7 due to subdued market conditions and cutbacks to new build projects. This was the second-fastest decline registered in housebuilding since May 2020.

Tim Moore, economics director at S&P Global Market Intelligence, said: “Resilient demand for commercial work and infrastructure projects are helping to keep the construction sector in expansion mode for now, but the survey’s forward-looking indicators worsened in August.”

Following strong growth in the spring, new order volumes were down. The data said that the downturn in order books was the steepest since May 2020. “Construction companies noted that rising interest rates and concerns about the near-term economic outlook had led to more cautious spending among clients, especially in the residential building segment,” the press release said.

Commenting on the figures, Giulia Bellicoso, economist at Capital Economics, said: “The continued strength of the commercial balance is surprising given the current backdrop of a slowing economy and tight monetary policy. But we don’t expect this resilience to last.”

Bellicoso explained that, with the Bank of England like to hike interest rates once more, “tightening credit conditions further”, lending to commercial property development will begin to decline.

“All told, we think that Construction PMIs will weaken over the remainder of the year.”

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