Construction growth slips to three-month low
Renewed slowdown in business activity; business expectations weakest since May 2020
UK construction companies signalled a renewed slowdown in business activity growth during November, reflecting subdued demand and reduced risk appetite among clients. A number of survey respondents noted that higher borrowing costs and worries about the economic outlook had curtailed construction activity.
Moreover, expectations for business activity growth during the year ahead continued to slide in November, with optimism the lowest for two-and-a-half years. Aside from the levels seen at the start of the pandemic, the degree of positive sentiment was the joint weakest since December 2008.
At 50.4 in November, the headline seasonally adjusted S&P Global / CIPS UK Construction Purchasing Managers’ Index (PMI) – which measures month-on-month changes in total industry activity – registered above the 50.0 no-change mark for the third month running. However, the index was down from 53.2 in October and pointed to the weakest performance since August.
Commercial work was the only segment to register an overall rise in business activity in November (index at 51.1). Meanwhile, house-building activity stalled (index at 50.0), ending at three-month period of marginal expansion, with higher mortgage rates and falling consumer confidence often noted as factors that had held back residential activity.
Civil engineering activity (46.7) declined for the fifth consecutive month, with the latest reduction being the sharpest since August. Lower volumes of output were mainly linked to a lack of new work to replace completed projects.
Looking ahead, around 29% of the survey panel anticipate a rise in business activity in 12 months’ time, while 26% forecast a decline. The resulting index signalled the lowest degree of confidence since May 2020, with anecdotal evidence suggesting that recession worries, higher interest rates, and a subdued housing market outlook had all weighed on optimism.
Tim Moore, economics director at S&P Global Market Intelligence, who compile the survey, said: ‘Stalling house-building activity contributed to the weakest UK construction sector performance for three months in November. Survey respondents noted that new residential building projects had been curtailed in response to rising interest rates, cancelled sales, and worries about the economic outlook.
‘Construction growth was largely confined to the commercial segment, but even here the speed of expansion slowed considerably since October as client confidence weakened in response to heightened business uncertainty. At the same time, a lack of new work to replace completed projects resulted in another fall in civil engineering activity.
‘The number of construction firms anticipating a rise in overall business activity during the year ahead exceeded those forecasting a decline by only a very fine margin during November. Moreover, disregarding a three-month period of negative sentiment at the start of the pandemic, our survey measure of business expectations across the construction sector was the joint-weakest since December 2008.’