UK construction companies indicated a decline in business activity for the
third consecutive month during November, led by another sharp fall in
residential building.
Elevated borrowing costs and subdued demand for new housing projects were
widely cited as factors holding back construction activity.
Latest survey data pointed to the steepest reduction in purchasing costs
across the construction sector for more than 14 years. This was linked to lower
raw material prices, alongside greater competition among suppliers in response
to falling demand for construction inputs.
The headline S&P Global / CIPS UK Construction Purchasing Managers’
Index (PMI) – a seasonally adjusted index tracking changes in total industry
activity – registered 45.5 in November, down fractionally from 45.6 in October
and below the 50.0 no-change value for the third month running.
The latest reading was the second-lowest since May 2020 and signalled a
marked reduction in total industry activity. November data illustrated that
house building (index at 39.2) remained by far the weakest-performing segment,
followed by civil engineering (43.5). Survey respondents cited cutbacks to
residential development projects and a general slowdown in activity due to
unfavourable market conditions.
Commercial building showed some resilience (index at 48.1), but activity in
this category has now decreased for three months in a row. Construction firms
noted that lacklustre domestic economic conditions and delayed decision-making
by clients on major investment spending had been factors limiting demand.
November data suggested a continued lack of new work to replace completed
projects.
Total new orders decreased for the fourth month running, albeit at the
slowest pace since August. Customer hesitancy and greater borrowing costs were
often reported as weighing on sales volumes, especially in the housing
category. Business activity expectations for the year ahead picked up from
October's recent low, but remained notably weaker than seen in the first half
of 2023.
Concerns about the near-term demand outlook contributed to a renewed decline
in staffing numbers during November and a marked reduction in purchasing
activity. Input buying has now decreased in five of the past six months,
largely reflecting reduced workloads and a lack of new project starts. Some
firms also commented on destocking efforts in response to improved supply
conditions, which led to lower input buying in November.
Average lead times among vendors shortened for the ninth successive month in
November. That said, the rate of improvement has eased considerably since the
summer. Survey respondents reported spare capacity among suppliers and weaker
demand for construction inputs, although some commented on transportation
delays. A combination of greater price competition among suppliers and falling
raw material costs contributed to another decrease in input prices across the
construction sector.
The overall rate of decline was the steepest since July 2009, with survey
respondents reporting falling prices paid for a range of materials (especially
steel and timber).
Tim Moore, Economics Director at S&P Global Market Intelligence, which
compiles the survey said: "A slump in house building has cast a long
shadow over the UK construction sector and there were signs of weakness
spreading to civil engineering and commercial work during November. Residential
construction activity has now decreased in each of the past 12 months and the
latest reduction was still among the fastest seen since the global financial
crisis in 2009. Elevated mortgage costs and unfavourable market conditions were
widely cited as leading to cutbacks on house building projects. Rising interest
rates and the uncertain UK economic outlook also hit commercial construction in
November, while a lack of new work contributed to the fastest decline in civil engineering
activity since July 2022.
"Improving supply conditions were evident again in November, linked to
rising raw material availability and spare capacity across the supply chain.
Greater competition among suppliers added to downward pressure on prices paid
for construction products and materials. The latest survey indicated that
overall input prices decreased for the second month running and at the fastest
rate since July 2009."
Dr John Glen, Chief Economist at the
Chartered Institute of Procurement & Supply (CIPS), said: “There is no
doubt that 2023 has been a difficult year for the UK construction sector.
Inflated borrowing costs and falling demand have conspired to further slow new
building this month. “Despite this, the sector has finally emerged from a
period of intense supply chain pressure and prices are now falling across the
board, especially for timber and steel. Projects are no longer being delayed
due to unexpectedly high material costs with November seeing the sharpest
reduction in purchasing prices since July 2009.
“There will be no quick fixes next year for the sector. Lower demand,
elevated interest rates and the prospect of an election promise an uncertain
start to 2024. This is a challenging moment for suppliers in the sector, who
may have tough price negotiations ahead.”
