UK construction sector propped up by commercial work as housebuilding slumps

UK housebuilding fell at the second sharpest rate since 2009 last month, aside from the pandemic, according to a closely-watched survey.

The latest latest S&P Global/CIPS construction purchasing managers’ index scored 50.8 in August, down from 51.7 in July.

Any score above 50 indicates that output has increased, while a score below 50 means it has fallen.

Overall output among construction firms increased in August, driven by a sustained good performance for the commercial building and civil engineering sectors.

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

But housebuilding remained the weakest-performing part of the construction sector with a score of just 40.7. Activity fell at the second-fastest rate since May 2020, and aside from the pandemic years, since spring 2009.

Residential builders are being hammered by rising interest rates and subdued market conditions, which has led to cutbacks to client demand and new build projects, the survey revealed.

Furthermore, sales slumped across the construction industry with new orders falling at the sharpest rate in more than three years.

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.

“Total new orders decreased at the fastest pace for more than three years amid worries about the broader economic outlook and the impact of elevated borrowing costs.”

The cost-of-living crisis continued to squeeze household finances and buyers were reluctant to commit in the shadow of potentially another interest rate in September

Dr John Glen, chief economist at the Chartered Institute of Procurement & Supply (CIPS), added: “The cost-of-living crisis continued to squeeze household finances and buyers were reluctant to commit in the shadow of potentially another interest rate in September.”

There were some glimmers of hope across the wider industry with suppliers’ delivery times shortening as stock availability improved, after a period of significant bottlenecks along the supply chain.

Businesses also saw inflation ease since July as costs begun to stabilise across the sector.

But firms were feeling cautious about the outlook for activity in the year ahead and the level of optimism slipped to its lowest since January, the report revealed.