As the downturn bites, activity in the UK construction sector falls at the fastest pace so far this year impacting on the housebuilding sector which has remained firmly in contraction, according to new figures.
The S&P Global UK construction PMI had a reading of 38.4 in June, marking a slight improvement on May’s six-year low of 38.2, but still showed the second fastest fall in output since the start of the pandemic. Any reading above the 50 threshold indicates that activity in the industry is increasing, while anything below means it is contracting.
Housebuilding and civil engineering remained under pressure, with bigger falls in activity than in May, with the latter having its weakest performance since the start of the pandemic. Commercial construction was the only part of the industry to record a slower downturn in activity.
Kiran Raichura, chief commercial real estate economist at Capital Economics, said: “The construction sector appears to have stabilised in June as, after three straight months of falls, the headline construction PMI rose marginally”. He added: “The latest data suggested that construction activity has reached a floor, with forward-looking expectations improving.
“However, the rises in input prices that we have already seen over the last few months will still feed through to construction costs over the coming months, while the level of activity remains in the doldrums for both the commercial and housing markets”.
The report showed easing cost pressures in June while supply chain disruptions were also “notably less acute” than in April and May, with fewer shipping delays.
There was also a rebound in business optimism as 38 per cent of construction firms surveyed for the report said they expect an increase in business activity over the year ahead, with 19 per cent predicting a decline. This follows a six-month low to optimism recorded in May.
Economics director at S&P Global Market Intelligence, Tim Moore, said: “New work decreased to the least marked extent since March, despite widespread reports of challenging market conditions.
“Construction companies commented on headwinds from subdued housing sales, elevated interest rates and squeezed consumer finances, alongside cutbacks to business investment plans”. He added: “Some firms noted delays with infrastructure work and fewer public sector tender opportunities”.
Meanwhile, property prices have been affected with the average UK house price flatlining last month as mortgage rates edged higher in the face of global economic uncertainty. Property values for July reported no growth compared with the previous month, slowing down from 0.2 per cent growth in June, according to the monthly Lloyds house price index.
Across the UK, the average property value in July was £299,253. It also meant that house prices were 0.1 per cent higher than a year earlier, the weakest annual increase since November 2023.
Northern Ireland had the strongest growth in prices across the UK, with prices up 7.4 per cent year on year for July at £231,131. It compares with 3.6 per cent growth in Scotland and a 1.6 per cent increase in Wales.
Increases in northern areas of England were offset by weakness in the south, with prices in the South East down 2 per cent and those in Greater London down 1.3 per cent.
Head of mortgages at Lloyds, Amanda Bryden, said the UK housing market “remained steady” in July. She added: “Average house prices have remained relatively stable for almost two years, moving within a narrow range over that period and sitting just 0.5 per cent higher than they were in November 2024.
“That trend has persisted even as buyer and sellers have faced a more uncertain economic backdrop this year. Affordability remains a challenge for many would-be buyers and, following recent events in the Middle East, mortgage rates have edged higher again after easing earlier in the summer”.
It comes after lenders have been hiking their mortgage rates in recent weeks, despite the base rate being held at 3.75 per cent.
Andy Jalil
The writer is our foreign correspondent based in the UK.
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