House building slows

6 September 2023

UK construction companies recorded a marginal increase in total business activity during August, with growth in the commercial and civil engineering sectors helping to offset another decline in house building, according to data from the construction purchasing managers’ index (PMI) gathered by S&P Global and the Chartered Institute of Procurement & Supply (CIPS). 

However, business activity forecasts for the year ahead were the weakest since January, with the fastest decline in new orders for just over three years.

At 50.8 in August, down from 51.7 in July, the headline index signalled only a slight increase in overall construction output, as 50.0 indicates no change.

Commercial building continued to expand (index at 54.2), and civil engineering activity (52.4) also increased but at its slowest rate since April. House building remained the weakest-performing construction sector (40.7), with the downturn the second-fastest 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 residential building. 

Dr John Glen, Chief Economist at the CIPS, said: "Residential building took another knock further into contraction as new housing starts weakened. 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. 

“The sector was propped up overall by some improvements in commercial activity such as office refurbishments.”