Construction output has eased due to “a sharp fall in housing activity”, according to S&P UK construction PMI data for June.
At 48.9, down from 51.6 in May, the purchasing managers’ index (PMI) fell below the 50.0 threshold for the first time in five months, meaning output contract, despite the start of summer.
The data also revealed a reduction in new orders for the first time since January. The weak demand was mainly related to rising interest rates and the economic outlook.
Residential work declined at the steepest pace since May 2020. Aside from the lockdown-related decline in homebuilding, the pace of contraction was the fastest since April 2009.
Positive news included the strongest improvement in construction input delivery times since July 2009.
Civil engineering was the best-performing segment, with business activity rising at the second-fastest pace since June 2022. Commercial building expanded in June, although the pace of growth slowed up to a minimum of three months.
June cited increased demand for renovation projects, but some companies reported more cautious decision-making by clients.
Commenting on the data, Kelly Boorman, partner and national head of construction at accountancy giant RSM UK, said: “This month’s fall in the headline PMI reflects the fall in activity that the industry has been bracing for .
“With mortgage rates set to rise above 7 per cent, this will hit affordability for first-time buyers and those with low deposits. So it’s no surprise that housebuilders are slowing down of work and act cautiously to protect their margins.
“Registered social landlords are also downsizing, which is worrying because the UK is already behind on its affordable housing targets. Going forward, this is likely to lead to pent-up demand and a chronic lack of supply “.
He added: “It’s not all bad news for the construction sector as we continue to see major infrastructure projects awarded and works completed, ensuring skilled labor remains in the UK and contributing to the overall optimism of industry. In addition, insolvencies in the sector fell in June, implying that companies remain resilient in the difficult economic climate.”
Glenigan also published the July 2023 edition of its construction index, covering the three months to the end of June. This indicates that during this longer period the trend in housing construction has not been so harsh.
While the data shows construction starts are on a downward trajectory, Glenigan reported a pick-up in residential construction, with site starts up a tenth from spring numbers.
Chief economist Allan Wilen said: “While we are not out of the woods yet, these green shoots reflect the predictions of our recent construction forecast, which expects the industry to return to growth in 2024.”
