Activity in Britain’s construction industry picked up in November but housebuilding weakened, throwing the government’s new homes targets into further doubt.
The S&P Global/CIPS UK Purchasing Managers’ Index for the construction industry came in at 55.2 last month, up from October’s 54.3.
Robust demand for commercial and civil engineering projects offset the contraction in residential housebuilding, underlining the industry’s sensitivity to interest rates and consumer sentiment.
Housebuilding activity declined at its steepest rate since June, with a reading of 47.9, as construction companies reported high borrowing costs and fragile consumer confidence had hit demand. Any reading above 50 means a sector is in growth, while a score below this means it is shrinking. Commercial construction activity expanded at the fastest pace since May 2022.
The Bank of England is expected to keep interest rates on hold this month after reducing them in November for only the second time since 2020. Governor Andrew Bailey on Wednesday reiterated that future rate cuts were likely to be gradual.
Labour has been warned it will miss its manifesto target of building 1.5m homes in England before the end of this parliament – 300,000 homes a year – without more radical reform to the planning system.
Tim Moore, the economics director at S&P Global Market Intelligence, said while the construction industry had avoided the slowdown seen elsewhere in the UK economy, the still high cost of borrowing hit new orders.
Construction firms also grew less optimistic about their prospects in the next 12 months, with confidence at its lowest since October 2023.
“A loss of momentum for new work, alongside concerns about rising employment costs, resulted in weaker job creation and falling business optimism across the construction sector,” Moore said.
The survey’s measure of employment rose marginally but the rate of job creation slowed to a three-month low.
Firms cited increasing labour costs as a factor holding back staff hiring. Some said they used sub-contractors to help mitigate rising costs.
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Employers across the economy have expressed concern about the rise in national insurance contributions paid by employers that was announced by chancellor Rachel Reeves in her 30 October budget and will come into effect in April 2025.
Input price inflation was its strongest since May 2023, reflecting increases in the cost of raw materials and the upcoming rises in labour costs.
A separate PMI survey on Wednesday also pointed to services firms’ concerns about rising employment costs.
The wider all-sector PMI, which includes previously released services and manufacturing figures, was the lowest in a year at 50.9, down from October’s 52.0.