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House prices: Higher mortgages stalling property market

mortgage  Growth at UK construction firms has hit a three-month low A builder working for Taylor Wimpey builds a roof on an estate in Aylesbury, Britain, February 7, 2017.  REUTERS/Eddie Keogh
Growth at UK construction firms has hit a three-month low amid higher mortgage rates in November. Photo: Eddie Keogh/Reuters

Growth in the UK's construction sector slowed more than expected in November higher mortgage rates and the gloomy economic outlook crippled the sector.

The S&P Global/CIPS UK Construction Purchasing Managers' Index (PMI) fell to a three-month low of 50.4 from 53.2 in October – down from 53.2 in October and the worst score since August.

Any score above 50 is considered to show the sector is expanding, below that it is shrinking.

The survey's gauge of future activity sank to its lowest level since the onset of the COVID-19 pandemic, indicating that the UK is heading towards a recession.

Construction companies said higher mortgage rates and falling consumer confidence as factors that had held back residential activity.

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Tim Moore, economics director at S&P Global Market Intelligence, said the jump in mortgage rates led to some house-building projects being ‘curtailed’:

“Stalling house building activity contributed to the weakest UK construction sector performance for three months in November.

Survey respondents noted that new residential building projects had been curtailed in response to rising interest rates, cancelled sales and worries about the economic outlook.

“Construction growth was largely confined to the commercial segment, but even here the speed of expansion slowed considerably since October as client confidence weakened in response to heightened business uncertainty. At the same time, a lack of new work to replace completed projects resulted in another fall in civil engineering activity.

Nevertheless, the number of construction firms that expect a rise in business activity over the next year outnumbered those who expected a decline, albeit by a "very fine margin".

Read more: Do we need to get over our fixation with fixed rate mortgages?

Max Jones, director in Lloyds Bank's infrastructure and construction team, said: “Looking ahead to 2023, the impact of economic uncertainty is creating significant issues for construction. Access to talent is also a big concern.

“Anecdotally, contractors are worried that without meaningful reform to the UK’s immigration system the skills gap will widen in 2023, as there are insufficient trained people in the workforce to meet employers’ immediate needs.”

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