UK housebuilding activity falls at fastest rate in nearly two years

Activity in UK housebuilding sector fell at its fastest rate in April since May 2020, according to a survey released on Friday, although broader construction activity rose.

The S&P Global/CIPS construction purchasing managers’ index increased to 51.1 from 50.7 in March, coming in marginally above consensus expectations of 51.0. A reading above 50.0 indicates expansion, while a reading below signals contraction.

Commercial building was the fastest-growing area, with improving economic conditions helping to boost clients' willingness to spend. Civil engineering activity also picked up, supported by resilient pipelines of work on infrastructure projects, but housebuilding was by the weakest-performing segment in April, with the index coming in at 43.0 from 44.2 in March.

Survey respondents noted delays to new house building projects, along with constraints on demand from softer market conditions and higher borrowing costs.

Tim Moore, economics director at S&P Global Market Intelligence, said: "The construction sector stretched out its current phase of expansion to three months in April, signalling a modest rebound from the downturn seen at the turn of the year. Commercial building work continued to outperform, helped by stabilising domestic economic conditions and a gradual rebound in business confidence. Civil engineering activity was also a driver of construction growth during April, with rising infrastructure work contributing to the best phase of expansion in this segment since the first half of 2022.

"However, the return to growth for UK construction output appears worryingly lopsided as residential work decreased for the fifth successive month. Extended delays on new housing starts were reported again in April, due to a considerable headwind from elevated mortgage rates and weak demand. While there have been some signs of a recent stabilisation in market conditions, this has yet to feed through to construction activity."

Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said he expects the downturn in housebuilding to gather more momentum in the third quarter, "as some builders likely are currently starting more housing units than required to meet demand, so that they do not have to comply with stricter 'Part L' building rules, which will apply from July.

"The likelihood that new mortgage rates will edge up over the coming months, mainly in response to the increase in risk-free rate expectations, suggests that underlying house purchase demand will remain weak this year," he said.

"Meanwhile, large net repayments of external finance by private non-financial corporations in recent months suggest that the current momentum in new commercial work will not endure. All told, then, we continue to think that construction output will finish the year down about 3% year-over-year."