Housebuilding’s struggles blunt construction output

Housebuilding’s ongoing woes meant construction output went into reverse last month after five months of growth.

The sector has been hit hard by rising interest rates and weaker demand for new homes meaning the index’s score for housebuilding last month was 39.6 – the steepest fall since May 2020 and the fastest fall for more than 14 years outside of lockdown-related collapses.

The problems meant the overall S&P Global/CIPS UK Construction PMI index for June fell to 48.9 from 51.6 in May. Any score below 50 means a contraction in the market.

Civil engineering was the best-performing sector with a score of 53.1, with business activity rising at the second-fastest pace since June 2022. Commercial building also expanded to post a score of 53, although the rate of growth slipped to a three month low.

In June, new orders declined for the first time since January, companies cut back on purchases of products and materials and suppliers’ delivery times improved at the quickest pace for 14 years.

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Construction firms also signalled a downturn in business confidence for the third month running. Weaker optimism about future workloads mostly reflected concerns related to rising interest rates and subdued housing market conditions.

CIPS chief economist John Glen added: “A large blot on the landscape was the fall in employment growth. With interest rates at the highest for 15 years and inflation four times over the Bank of England target, the sudden reduction in construction sector hiring is one of the red flags facing the UK economy at the moment.”

And the director of Lloyds Bank’s infrastructure and construction team, Max Jones, warned the supply chain was being hit by a squeeze from rising salaries and the cost of dealing with fixed price contracts.

He said: “Inflation, particularly on salaries, has caused purse strings to tighten at a time when investment in skills and technology is most needed.”