Housebuilding in decline once more as excessive borrowing prices hit demand

Activity in Britain’s housebuilding sector continued to fall last month, as high borrowing costs and weak consumer confidence weighed on demand.

The closely watched 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.    

While the construction industry picked up in November, growth was lopsided, amid weaker residential house-building which is sensitive to high interest rates.

Robust demand for commercial and civil engineering projects offset the contraction in residential housebuilding. 

Commercial construction activity expanded at the fastest pace since May 2022.

Conversely, residential work declined at the steepest rate since June. Housebuilding firms said high borrowing costs and fragile consumer confidence were hitting demand.

Data: Activity in Britain’s housebuilding sector continued to fall last month, new data reveals

Tim Moore, economics director at S&P Global Market Intelligence, said while the construction industry has avoided the slowdown seen elsewhere in the economy, the high cost of borrowing continued to hit new orders. 

Construction firms also grew less optimistic about their prospects in the upcoming year, 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 added.

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.

Employers across the economy have expressed concern about the rise in national insurance contributions paid by employers that was announced by Rachel Reeves in her 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.

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. BoE Governor Andrew Bailey on Wednesday reiterated that future rate cuts were likely to be gradual. 

Huda As’ad, Accenture’s UK capital projects lead, said: ‘The turbulent year ends on a high note with an almighty comeback in UK commercial construction activity returning the industry to growth. 

‘For the sector to continue its momentum in 2025, it must be brave to do things differently and focus on digitisation and real outcomes driven by insightful data. 

‘The construction industry continues to be overly cautious in the uptake of technology, and modern engineering practices, which leaves the sector facing an uphill climb as it faces a growing pipeline of crucial projects, and skills shortages, which, if unaddressed, could hinder economic growth more broadly.’