Weak housebuilding demand drags on UK construction sector

The closely-watched S&P Global/CIPS construction purchasing managers’ index hit a four-month low in May.

08 June 2022

The UK’s construction sector saw growth slow in May after the weakest performance in the residential housing sector for two years as concerns over the economy weighed on demand.

The closely-watched S&P Global/CIPS construction purchasing managers’ index (PMI) scored 56.4 in May, dipping from 58.2 in the previous month.

Anything above 50 is considered growth.

However, the latest figure represents the slowest growth for four months.

The report said the slowdown was driven by weakness in housebuilding, with the residential sector reporting a reading of 50.7 for the month, dropping from 53.8 in April.

It comes on the back of recent increases in interest rates and as inflation continues to press on household incomes.

Nevertheless, experts said a resilient commercial construction industry helped to offset some of this impact.

Tim Moore, economics director at S&P Global Market Intelligence, said: “May data signalled a solid overall rise in UK construction output as resilience across the commercial and civil engineering segments helped to offset weakness in housebuilding.

“Residential construction activity was close to stagnation in May, which represented its worst performance for two years amid signs of softer demand and a headwind from low consumer confidence.”

Commercial building recorded a reading of 59.8 for May, reflecting a marginal dip in growth as firms noted “strong demand” despite some hesitancy over the uncertain economic backdrop.

Civil engineering also saw growth improve for the fifth consecutive month due to increased investment in infrastructure projects.

Surveyed companies said rapid cost inflation persisted in May, with the vast majority of firms – 73% – highlighting an increase in purchasing prices due to rising fuel, energy and raw material costs.

Duncan Brock, group director at the Chartered Institute of Procurement & Supply (CIPS), said: “Affordability concerns will be weighing on the mind of potential house-buyers grappling with escalating costs for everyday items, resulting in a postponement of big purchases until the UK economy shows more resilience.

“The lack of positive sentiment was also reflected in construction companies’ confidence over the next 12 months, with optimism dropping to the weakest since August 2020, even though this was the best-performing sector out of the three.”

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