Housebuilding slumps at fastest rate since Covid

Weak growth across Britain’s construction sector picked up modestly in May, despite an increasingly severe downturn in house-building activity prompted by rising interest rates, a survey showed on Tuesday.

Housebuilding activity in May contracted at its fastest pace since the first Covid lockdown in 2020, according to the latest construction purchasing managers’ index from S&P Global and the Chartered Institute of Procurement & Supply.

Work on new residential building projects fell for the sixth month in a row in April, the property market having been hit hard by a combination of escalating mortgage rates and a the rising cost of living.

However, the S&P Global/CIPS UK Construction Purchasing Managers’ Index (PMI) rose to 51.6 from 51.1 in April, thanks to the civil engineering and commercial sectors, which drove the increase, with the survey’s gauge of new orders reaching its highest level since April 2022.

Overall, construction added to recent signs of resilience in the economy, even if many forecasters expect Britain to suffer higher inflation and weaker growth for longer than its peers.

“Rising demand among corporate clients and contract awards on infrastructure projects … underpinned the fastest rise in new orders since April 2022,” said Tim Moore, economics director at  S&P Global which runs the survey.

It was a different story for housing activity, which contracted at the fastest rate since the onset of the COVID-19 pandemic three years ago. Excluding the pandemic, only the 2009 recession saw worse downturns in house-building.

“Cutbacks to new residential building projects in response to rising interest rates and subdued housing market conditions resulted in the sharpest drop in housing activity for three years,” Moore said.

Interest rates offered by lenders for new mortgage deals have risen sharply over the last two weeks, as higher-than-expected inflation data prompted investors to double down on bets that the Bank of England will be forced to raise borrowing costs further.

Many economists think this could spur renewed weakness in Britain’s housing market, which had been showing signs of stabilisation in recent months.

“Survey respondents also commented on concerns about the broader UK economic outlook, which contributed to an overall drop in output growth projections to the lowest for four months.”