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The UK construction sector witnessed a sharp decline for the third consecutive month in November. The slump, primarily in house-building, reflects the strain of increased Bank of England interest rates, as per a Wednesday survey.
Key Highlights:
- UK’s construction sector contracts sharply for the third consecutive month in November.
- S&P Global/CIPS UK construction Purchasing Managers’ Index (PMI) drops to 45.5, below the growth threshold.
- Factors contributing to the contraction include lower steel and timber prices and subdued demand.
- The wider economy shows a moderate improvement, with the all-sector PMI rising to 50.2, the highest since July.
UK Construction Sector PMI Records Sharp Dip
The S&P Global/CIPS UK construction Purchasing Managers’ Index (PMI) dropped marginally to 45.5 compared to October’s 45.6. This falls well below the growth threshold of 50.0 and marks the second-lowest reading since the early stages of the COVID-19 pandemic.
Declining prices of steel and timber coupled with subdued demand contributed to a rapid decrease in raw material costs, the fastest since July 2009.
Read More: Swiss Consumer Prices Dropped by 0.2% in November 2023https://tradingcompass.io/what-is-the-purchasing-managers-index-pmi/
Contrasting Sectoral Performance
While the construction sector faced a downturn, the broader economy depicted a relatively more positive, albeit sluggish, trend. The all-sector PMI surged to 50.2 in November, as per the latest report, marking its highest point since July and a notable rise from October’s 48.4. Notably, this growth was influenced significantly by a recent optimistic services release.
Despite a gradual decline in mortgage rates since summer, house-building emerged as the most affected sector due to the Bank of England’s series of interest rate hikes from December 2021 to August this year.
House Prices and Mortgage Trends
Recent official data on house prices unveiled the first annual decline since 2012. Over 1 million homeowners faced the need to switch to higher mortgage rates this year, with an anticipated additional 1.5 million Britons to follow suit next year.
Tim Moore, the economics director at S&P Global, highlighted, “Residential construction activity has consistently declined for the past 12 months, with the latest reduction among the fastest seen since the global financial crisis in 2009.”
UK Construction Sector Impact on Specific Projects
Civil engineering projects experienced the most significant cutback since July 2022, while commercial clients also reduced their activities, albeit to a lesser degree.
Official data indicated a substantial 13.4% annual decline in private-sector housebuilding in the third quarter of 2023. However, overall construction volumes exhibited a rise of 2.5%.
