UK construction companies have indicated a decline in business activity for the third consecutive month during November, led by another sharp fall in residential building, with elevated borrowing costs and subdued demand for new housing projects being widely cited as factors.
Latest survey data from S&P Global 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) registered 45.5 in November, down from 45.6 in October and below the 50.0 no-change value for the third month running. The latest reading was also 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.
Meanwhile, 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.
Decreasing new orders
November data also noted 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. However, 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).