The UK construction industry experienced a renewed decline in business activity in June, primarily due to a significant downturn in house building. Latest data from the S&P Global / CIPS UK Construction Purchasing Managers’ Index (PMI) revealed a reduction in new orders for the first time since January. However, there was some positive news, as softer demand and fewer supply bottlenecks led to improved delivery times for construction inputs, marking the sharpest improvement since July 2009. Additionally, purchasing prices for construction materials declined for the first time in thirteen-and-a-half years.
The seasonally adjusted PMI registered a reading of 48.9 in June, down from 51.6 in May, falling below the neutral 50.0 threshold for the first time in five months. Although the reduction in output levels was marginal overall, there were divergent trends observed across the three major categories of construction activity. Residential work experienced the steepest decline since May 2020, driven by a fall in house building and weaker demand due to rising borrowing costs and a subdued housing market outlook. Civil engineering was the best-performing segment, with business activity rising at the second-fastest pace since June 2022. Meanwhile, commercial building expanded at a solid pace, albeit at a three-month low growth rate, with rising demand for refurbishment projects.
New order volumes decreased, albeit marginally, for the first time since January. Subdued demand was attributed to rising interest rates affecting house building projects and clients’ concerns about the general economic outlook. Construction companies responded by reducing their inventories and cutting back on purchases of products and materials. Suppliers’ delivery times improved for the fourth consecutive month, marking the strongest improvement in around 14 years. Respondents cited improved availability of inputs due to rising stocks among vendors and softer underlying demand.
Overall input prices in the construction sector declined marginally in June, representing the first reduction in average cost burdens since January 2010. Construction firms cited lower fuel, steel, and timber prices, as well as more competitive market conditions resulting from falling demand. Sub-contractor charges also increased at the slowest pace in 31 months.
Business confidence in the construction sector declined for the third consecutive month in June, primarily reflecting concerns about rising interest rates and subdued housing market conditions.
Tim Moore, Economics Director at S&P Global Market Intelligence, commented on the weak housing market conditions and their impact on construction output. He noted that while residential work experienced a sharp decline, commercial and civil engineering segments showed more resilience due to demand for refurbishment projects and robust infrastructure workloads. Moore also highlighted the decline in purchasing prices, which contrasted with the previous years’ rapid rates of cost inflation.
Dr. John Glen, Chief Economist at the Chartered Institute of Procurement & Supply (CIPS), expressed concern over the contraction in the construction sector, particularly in residential building output. Glen noted that civil engineering and commercial building projects remained relatively buoyant, but the decline in employment growth and the combination of high interest rates and inflation posed challenges for the UK economy.
The construction sector’s performance in June indicates the need for caution and close monitoring of the impact of interest rate changes and affordability issues on the housing market, while other segments continue to show resilience in the face of ongoing challenges.
