May’s PMI figures showed lowest residential reading in three years
Housebuilding output fell in May at the steepest rate for three years, the latest construction PMI numbers showed.
Work on residential building projects declined for the sixth month running to hit 42.7 on the index, published today by S&P Global/CIPS UK. Any score below 50 in the index indicates a decline in activity.
If the pandemic-era downturn is discounted, this is the lowest reading for housebuilding for just over 14 years.
Industrywide output rose modestly in May, with increased commercial and civil work compensating for the performance of residential.
Total activity rose from 51.1 to 51.6 month-on-month, the fastest pace for three months. Meanwhile, the overall rate of input price inflation eased to its weakest level for 32 months.
John Glen, chief economist at the Chartered Institute of Procurement & Supply, said the steep drop in housebuilding would “send a chill down the spine” of the UK economy.
“The residential sub-sector is closely linked to consumer confidence and levels of spending,” he said.
“A further hike in interest rates is expected this month and along with the relentless increase in the cost of living is making buyers hesitate about purchasing homes.
“As a result, builder confidence was pinched to remain below the survey average, as business costs remained high and firms expanded their workforce numbers at only a modest pace as they were cautious about their own affordability rates.”
Max Jones, director in Lloyds Bank’s infrastructure and construction team, said: “Contractors are generally optimistic as HS2 and other publicly funded projects provide stability to order books.
“The industry has also been buoyed by demand for commercial projects in city centres, with London reaching a 20-year high.
“Welcome regulatory changes post-Grenfell mean contractors will be making substantial investments in the coming months to ensure their safety measures meet new requirements.
“While inflation has eased for most of the industry from last year’s highs, contractors will be hoping the latest official figures mean prices for materials will continue to fall and provide businesses with confidence to invest in projects.”
Meanwhile, market intelligence firm Glenigan’s latest construction index showed a fall in the value of underlying work starting on site in the three months to May.
It was down 16% on the preceding three-month period to stand 42% lower than a year ago.
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