Data for August indicated a continued decline in business activity in the UK construction sector, led by weakness in the residential building sector.
The seasonally adjusted Standard & Poor’s Global UK Construction Purchasing Managers’ Index – an index that tracks changes in overall industry activity – registered 44.3 in August, down from 44.7 in July and below the neutral value of 50.0 for the twentieth month in a row.
The decline in residential work (index at 37.6) was steeper than seen elsewhere in the construction sector.
The lack of new work to replace completed projects, coupled with severe cost pressures, has led to a further decline in employment numbers in the construction sector.
Commenting on the latest figures, Tim Moore, Director of Economics at S&P Global Market Intelligence, said: “UK construction companies saw another strong decline in production volumes, with a rapid slowdown in housebuilding the main reason for the overall weak performance during August. The sharp and accelerating decline in residential activity was offset by slower declines in the commercial and civil engineering sub-sectors.”
He added: “Slowing demand and declining customer confidence, along with concerns about the impact of the conflict in the Middle East, were factors that once again contributed to reducing workloads in the construction sector.”
Richard Pike, Sales and Marketing Director at Phoebus Software, commented: “This is a difficult time for the UK housebuilding sector, and today’s figures are a reminder of just how tough it is. Builders are under pressure from both sides – costs continue to rise, while demand is stifled by affordability constraints and rising mortgage rates.
“Construction activity hit a six-year low in May, and although it began to regain some ground over the summer, this fall shows just how fragile that recovery really is. And the pressures are mounting: government bond yields hit their highest level since 1998 this week, and oil prices are rising again. Both of these are adding to the cost burden that homebuilders are already struggling with.”
He added: “Both Belloway and Barratt-Redrow have called on the government to act – Belloway specifically wants an immediate stamp duty cut alongside a deposit support scheme for first-time buyers – but the new Prime Minister appears cold to the idea, and it remains to be seen whether he has the fiscal space to deliver anyway. Something needs to be done to stimulate demand. Without it, supply will continue to shrink in a downward spiral, and today’s figures are a warning sign of exactly that.”
