UK construction sector stumbles

The UK construction sector faltered last month, a closely-watched survey showed on Tuesday, as higher borrowing costs and the weaker economic outlook curbed demand.

The S&P Global/CIPS UK Construction Purchasing Managers’ Index fell to 50.4 in November, from 53.2 in October. It is the third consecutive month that the index has fallen, and well below the consensus for 52.0.

A reading above 50.0 indicates growth, while a reading below suggests contraction.

Only commercial work registered an overall rise in business activity, at 51.1, although that was down on October's 54.5. Housebuilding stalled at 50.0, ending a three-month period of expansion, while civil engineering fell for the fifth month, to 46.7.

Survey respondents cited subdued demand and reduced risk appetite among clients for the slowdown in business activity. Higher borrowing costs and worries about the economic outlook were also flagged.

As a result, optimism for business activity growth in the year ahead fell to the lowest point for more than two years. Stripping out the start of the pandemic, when sentiment plunged, it was the joint weakest reading since December 2008.

However, the overall rate of input cost inflation eased to its lowest level in 22 months, helped in part by the cheaper commodity prices.

Tim Moore, economics director at S&P Global Market Intelligence, said: "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."

Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said: "The recovery in the construction sector appears to have stalled in November, as higher interest rates take their toll on demand for new housing and commercial work.

"Admittedly, the sector is not in free-fall: the new orders index rose to 51.6 rom 49.7, and many builders will have a backlog of orders to work through. Cost pressures also eased.

"Nonetheless, data from leading house builders show that the sharp rise in mortgage rates and low level of consumer confidence has started to depress sales."