Housebuilding downturn continues as higher interest rates constrain demand
The continued slump in housebuilding contributed to another significant fall in construction activity in October, a closely watched survey suggests.
According to the S&P Global and CIPS UK Construction purchasing managers’ index (PMI), housebuilding remained deeply in negative territory in October, as rising interest rates weighed on demand.
The housebuilding index fell to 38.5, slightly up from 38.1 last month but well below the 50-mark which separates growth from contraction. This was the eleventh successive month of contraction.
Falling work in residential building was linked to a “lack of demand and subsequent cutbacks to new projects,” the survey showed.
Rising interest rates have sent a shiver through the housing sector as consumers struggle with more expensive mortgages.
“High interest rates and low consumer demand for new homes continue to drag down the UK construction sector, with a lack of new tender opportunities and a cutback of existing projects being reported across the house building industry,” John Glen, chief economist at the Chartered Institute of Procurement & Supply (CIPS), said.
The rate of contraction in the housebuilding sector was significantly faster than in other construction subsectors.
The survey showed that civil engineering activity dropped at the fastest pace since July 2022. Commercial building meanwhile saw some signs of “stabilisation,” with activity falling at a slower pace than last month.
This put the overall construction PMI at 45.6 in October, slightly higher than the 45.0 in September but still the second-lowest reading since May 2020.
Across all sectors, new work continued to fall more quickly than at any time since the first lockdown.
Respondents noted “a lack of tender opportunities and lengthier decision-making among clients due to concerns about the broader economic outlook”.
Falling demand contributed to the fastest fall in purchasing prices for over 14 years as lower raw material costs were passed on by vendors.
“Total new work continued to fall more quickly than at any time since the initial pandemic lockdown period, which contributed to shrinking demand for construction products and materials during October,” Tim Moore, Economics Director at S&P Global Market Intelligence, said.