UK construction sector contracts sharply in November-PMI

By David Milliken

LONDON (Reuters) – Britain’s construction sector activity fell sharply for a third month in a row in November, led by an ongoing slump in house-building as it bears the brunt of higher Bank of England interest rates, a survey showed on Wednesday.

The S&P Global/CIPS UK construction Purchasing Managers’ Index (PMI) edged down to 45.5 from October’s reading of 45.6, well below the 50.0 growth threshold and the second-lowest reading since early in the COVID-19 pandemic.

Lower prices for steel and timber and generally weaker demand pushed down raw material costs at the fastest rate since July 2009.

The slump in construction contrasts with a more positive, though still sluggish, picture in the wider economy. The all-sector PMI rose to 50.2 in November, Wednesday’s report showed, its highest since July and up from October’s 48.4. It was bolstered mostly by Tuesday’s more upbeat services release.

Despite a downward drift in mortgage rates since the summer, house building has been the clearest victim of the Bank of England’s run of interest rate increases between December 2021 and August this year.

Britain’s official series of house prices last month showed its first annual decline since 2012 as over 1 million homeowners this year had to refinance on to higher mortgage rates. Next year a further 1.5 million Britons will need to move to new mortgage rates.

“Residential construction activity has now decreased in each of the past 12 months and the latest reduction was still among the fastest seen since the global financial crisis in 2009,” Tim Moore, economics director at S&P Global, said.

Civil engineering projects were scaled back by the most since July 2022 and commercial clients also retrenched, though to a lesser extent.

The most recent official data showed a 13.4% annual fall in private-sector housebuilding in the third quarter of 2023. Overall construction volumes rose by 2.5%.

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