Renewed decline in UK construction activity in June

Construction output falls for first time in five months amid steep downturn in housing activity 

UK construction companies signalled a renewed decline in business activity during June as a steep and accelerated downturn in house building weighed on overall workloads. Latest data also highlighted a reduction in new orders for the first time since January.

On a more positive note, softer demand and fewer supply bottlenecks resulted in the sharpest improvement in delivery times for construction products since July 2009.

At 48.9 in June, down from 51.6 in May, the headline seasonally adjusted S&P Global / CIPS UK Construction Purchasing Managers’ Index (PMI) registered below the neutral 50.0 threshold for the first time in five months.

The reduction in output levels was marginal overall, but this masked divergent trends across the three major categories of construction activity monitored by the survey.

Residential work (index at 39.6) decreased at the steepest pace since May 2020. Aside from the lockdown-related fall in house building, the rate of contraction was the fastest since April 2009. Survey respondents widely commented on weaker demand due to rising borrowing costs and a subdued outlook for the housing market.

Civil engineering was the best-performing segment (index at 53.1), with business activity rising at the second-fastest pace since June 2022. Construction companies mostly noted increasing work on infrastructure projects.

Commercial building also expanded at a solid pace in June (index at 53.0), although the rate of growth slipped to a three-month low.

New order volumes decreased for the first time since January, although the pace of decline was only marginal overall. Subdued demand was mostly linked to the impact of rising interest rates on house building projects, alongside concerns among clients about the general economic outlook.

Suppliers’ delivery times shortened for the fourth month running. The latest improvement in vendor performance was the strongest for around 14 years. Survey respondents widely commented on improved availability of inputs due to rising stocks among vendors and softer underlying demand.

Tim Moore, economics director at S&P Global Market Intelligence, who compile the survey, said: ‘Weaker housing market conditions in the wake of higher borrowing costs acted as a major constraint on UK construction output in June. Total industry activity declined for the first time in five months due to the steepest downturn in residential work since May 2020. Aside from the lockdown-related fall in house building, the rate of decline was the fastest for just over 14 years. 

‘Solid rates of output growth in the commercial and civil engineering segments helped to offset some of the weakness in residential construction. Higher levels of business activity were attributed to resilient demand for refurbishment projects in the commercial construction sector and robust infrastructure workloads.’