The UK housebuilding sector experienced its steepest decline in activity so far this year, as the broader construction industry remained firmly in contraction, according to the latest S&P Global UK construction Purchasing Managers' Index (PMI).
PMI reading signals continued contraction
The headline PMI registered 38.4 in June, a slight uptick from May's six-year low of 38.2 but still the second-fastest fall in output since the onset of the Covid-19 pandemic. Any reading below 50 indicates contraction, while above signals expansion. The index has now remained below the neutral 50 threshold for several months, underscoring persistent weakness across the sector.
Housebuilding and civil engineering were particularly hard hit, with both sub-sectors recording larger declines in activity compared to May. Civil engineering posted its weakest performance since the start of the pandemic. In contrast, commercial construction was the only segment to see a slower rate of downturn than in the previous month.
Signs of stabilisation but headwinds remain
Kiran Raichura, chief commercial real estate economist at Capital Economics, noted that the headline PMI rose marginally after three consecutive months of decline. “The construction sector appears to have stabilised in June,” he said. “The latest data suggest that construction activity has reached a floor, with forward-looking expectations improving.” However, he cautioned that rising input prices would continue to feed through to construction costs in the coming months, while activity levels remained subdued in both commercial and housing markets.
The report also indicated easing cost pressures in June, with supply chain disruptions described as “notably less acute” than in April and May, partly due to fewer shipping delays. Business optimism rebounded, with 38% of construction firms expecting an increase in business activity over the year ahead, compared to 19% predicting a decline. This follows a six-month low in optimism recorded in May.
Market conditions and outlook
Tim Moore, economics director at S&P Global Market Intelligence, commented: “New work decreased to the least marked extent since March, despite widespread reports of challenging market conditions. Construction companies commented on headwinds from subdued housing sales, elevated interest rates and squeezed consumer finances, alongside cutbacks to business investment plans.” He added that some firms noted delays with infrastructure work and fewer public sector tender opportunities, but energy markets were cited as an area of positivity.
