UK construction sector held back by residential slowdown

·Business Reporter, Yahoo Finance UK
·2-min read
A worker lays bricks for a residential home at a building site in north London as UK construction growth falls
UK construction: The latest PMI reading signalled the worst performance for residential work since May 2020. Photo: Neil Hall/Reuters

The UK construction sector saw another slowdown in May due to residential work growing at its weakest pace in two years.

According to the latest S&P global construction purchasing managers index (PMI), which measures month-on-month changes in total industry activity, the reading came in at 56.4 last month, down from 58.2 in April.

Although any reading above 50 indicates growth, it was the lowest reading for four months.

Weaker trends in the house building sub-sector was the main brake on growth, with this index falling to 50.7 from 53.8 in April. The reading signalled the worst performance for residential work since May 2020.

Survey respondents said subdued consumer confidence and worries about the economic outlook had constrained demand.

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Higher borrowing costs and intense inflationary pressures were also cited as factors likely to hold back growth over the next 12 months.

However, commercial building was the fastest-growing segment during the period, at 59.8, with the speed of expansion easing only slightly since April.

Construction companies noted strong demand for commercial work, despite a degree of hesitancy due to the uncertain economic outlook.

Meanwhile, civil engineering activity increased for the fifth month running at a robust pace, with a reading of 55.5 amid a sustained boost from major infrastructure projects.

Total new orders expanded again in May, which marked two years of continuous sales growth in the construction sector. That said, the latest increase in new work was the slowest since December 2021.

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The data also revealed that job creation accelerated slightly in May, and was the strongest for four months.

Meanwhile, rapid cost inflation persisted in May, with the majority (73%) of survey respondents reporting a rise in purchasing prices. This was linked to rising fuel, energy and raw material costs.

However, the overall rate of inflation eased to a three-month low.

Construction companies suggested that lower consumer confidence, rising borrowing costs and heightened economic uncertainty were all likely to affect client demand in the next 12 months.

“May data signalled a solid overall rise in UK construction output as resilience across the commercial and civil engineering segments helped to offset weakness in house building,” Tim Moore at S&P Global said.

Residential construction activity was close to stagnation in May, which represented its worst performance for two years amid signs of softer demand and a headwind from low consumer confidence.

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