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UK housebuilding activity falls for first time in two years

Residential housebuilding activity across Britain slowed down for the first time in two years in June, new data from a closely-watched survey has revealed. 

The latest reading for the housing segment of the construction sector came in at 49.3, signalling a downturn in residential work for the first time since May 2020, the S&P Global/CIPS UK Construction PMI data revealed. A reading of 50 or above indicates growth.

Across all segments of the construction sector, total business activity expanded at the weakest pace for nine months and new orders increased to the smallest extent since last October.

Slowdown: Residential housebuilding activity across Britain slowed down for the first time in two years in June, a closely watched survey has revealed 

At 52.6 in June, down from 56.4 in May, the headline seasonally adjusted UK construction sector PMI, which measures month-on-month changes in total industry activity, registered above the 50 no-change mark for the seventeenth consecutive month. 

But, the latest reading signalled ‘only a moderate increase in construction output and the slowest rate of expansion since September 2021’, the survey said. 

Many experts working in the construction sector are concerned about the near-term prospects of the economy, prompting a sharp decline in business expectations for the year ahead.

‘June data indicated that growth projections are now the least upbeat since July 2020’, the survey said.

Duncan Brock, group director at the Chartered Institute of Procurement & Supply, said: ‘Residential building levels fell for the first time since May 2020, and builders are getting an increasingly stark vision of the marketplace they are now operating in as overall activity growth also fell sharply.

‘This is in glaring contrast to the pandemic years where the construction sector held up well compared to the other sectors, but the weakest rise in output since September 2021 and the softest increase in new orders since October shows this has now changed. 

‘The heightened competition faced for short supply raw materials as well as essential skills for the building trade is squeezing the optimism out of builders with the lowest business expectations since July 2020.’ 

Activity: A chart showing activity across the different sub-sectors in construction in June

Activity: A chart showing activity across the different sub-sectors in construction in June

Reading: At 52.6 in June, down from 56.4 in May, activity in the construction sector slowed

Reading: At 52.6 in June, down from 56.4 in May, activity in the construction sector slowed

Tim Moore, economics director at S&P Global Market Intelligence, added: ‘The gloomy UK business outlook and worsening consumer demand due to the cost of living crisis combined to put the brakes on construction growth in June.

‘Construction companies appear braced for a difficult second half of the year as new order growth and business activity expectations fell again in June, reflecting inflation concerns, higher interest rates and less favourable domestic economic conditions. 

‘Measured overall, the degree of optimism across the construction sector is now the lowest seen since July 2020.’

Within the construction sector, civil engineering was the most resilient sub-sector in June. A similarly strong increase in business activity was seen in the commercial segment, but the rate of growth eased sharply since May to the slowest so far in 2022.

But across the sector many businesses flagged that there was a lack of new work coming through to replace completed projects, ‘due to economic uncertainty and inflation concerns’.

Attracting talent also remained an issue in June. The survey said: ‘Survey respondents once again commented on shortages of candidates to fill vacancies, despite higher wage offers.’ 

Suppliers’ delivery times lengthened again, but the downturn in performance remained less marked than that seen in the first quarter. Staff shortages and a lack of transport availability were the most commonly cited reasons for longer wait times for construction products and materials. 

Surging prices also pose a threat to the sector. Just over 70 per cent of construction businesses surveyed reported higher purchasing prices in June, while only 1 per cent signalled a reduction.

Martin Beck, chief economic advisor to the EY Item Club, said: ‘The fall in the construction PMI accompanied a fall in the manufacturing index. But with June’s services PMI seeing a surprise rise and all three of June’s PMIs remaining above the 50 ‘no-change’ mark separating the S&P Global/CIPS surveys’ measure of expansion from contraction, the economy does not appear to be out of steam yet.

‘The EY Item Club still expects GDP to have declined in Q2, although that will be more a consequence of temporary drags from the end of free Covid-19 tests and June’s extra bank holiday than underlying weakness. But the forward-looking balances of all three of June’s PMIs declining points to tougher times ahead.’

Worsening economic outlook predicted by BoE 

On Tuesday, the Bank of England warned of a worsening outlook for the global economy, as the war in Ukraine continues to exacerbate soaring inflation and weigh on growth.

The Bank said the economic outlook for the UK and globally had ‘deteriorated materially’, and highlighted key risks arising in various markets.

It announced that it would conduct an ‘in-depth’ investigation of ‘opaque’ commodity markets, which have seen huge price spikes in the wake of the Ukraine war and left policy makers without a full picture of risks and vulnerabilities.

Sky-high commodity prices, such as the spikes seen in oil, gas and precious metals, have been a key driver of broader inflationary pressures and have led a number of global regulators to emphasise the need to plug data gaps in the sector.

Amid economic and market turbulence, new Chancellor Nadhim Zahawi will be under intense pressure to act in a bid to shore up the nation’s finances and secure an economic recovery.