House building struggles
6 December 2023
UK construction companies indicated a decline in business activity for the third consecutive month during November, led by another sharp fall in residential building, according to data from the construction purchasing managers’ index (PMI) gathered by S&P Global and the Chartered Institute of Procurement & Supply (CIPS).
Elevated borrowing costs and subdued demand for new housing projects were widely cited as factors holding back construction activity.
However, the survey data pointed to the steepest reduction in purchasing costs across the construction sector for more than 14 years. This was linked to lower raw material prices, alongside greater competition among suppliers.
The headline index figure registered 45.5 in November, down fractionally from 45.6 in October and below the 50.0 no-change value for the third month running. This was the second-lowest since May 2020 and signalled a marked reduction in total industry activity.
November data illustrated that house building (index at 39.2) remained the weakest-performing segment, followed by civil engineering (43.5). Survey respondents cited cutbacks to residential development projects and a general slowdown in activity due to unfavourable market conditions. Commercial building showed some resilience (index at 48.1).
Total new orders decreased for the fourth month running, albeit at the slowest pace since August. Customer hesitancy and greater borrowing costs were often reported as weighing on sales volumes, especially in the housing category.
Business activity expectations for the year ahead picked up from October's recent low, but remained weaker than seen in the first half of 2023.
Tim Moore, Economics Director at S&P Global Market Intelligence, said: "Residential construction activity has now decreased in each of the past 12 months and the latest reduction was still among the fastest seen since the global financial crisis in 2009. Elevated mortgage costs and unfavourable market conditions were widely cited as leading to cutbacks on house building projects.”
Dr John Glen, Chief Economist at CIPS, said: “There is no doubt that 2023 has been a difficult year for the UK construction sector. Inflated borrowing costs and falling demand have conspired to further slow new building this month.
“Despite this, the sector has finally emerged from a period of intense supply chain pressure and prices are now falling across the board, especially for timber and steel. Projects are no longer being delayed due to unexpectedly high material costs with November seeing the sharpest reduction in purchasing prices since July 2009,” he continued.
“There will be no quick fixes next year for the sector. Lower demand, elevated interest rates and the prospect of an election promise an uncertain start to 2024. This is a challenging moment for suppliers in the sector, who may have tough price negotiations ahead.”
