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Housing slowdown holds back construction growth in UK

construction  A builder working for Taylor Wimpey builds a roof on an estate in Aylesbury, Britain, February 7, 2017.  REUTERS/Eddie Keogh
UK housing market slump drags construction activity lower. Photo: Eddie Keogh/Reuters

The UK’s construction industry grew more slowly than expected as higher borrowing costs hit demand for residential work.

The S&P Global/CIPS UK construction PMI index stood at 50.7 in March, down from 54.6 in February but above the 50.0 mark which separates expansion from contraction.

This means the construction sector continued to expand in the UK for a second straight month.

"Despite worries about the near-term outlook for housing activity, expectations for total construction output during the year ahead were relatively upbeat in March," said Tim Moore, economics director at S&P global market intelligence.

Civil engineering and commercial projects saw a sustained rebound in output levels and improved tender opportunities, leading to the strongest rate of job creation in five months.

Read more: UK services sector continues recovery

Housing activity was the main reason for the slowdown, decreasing sharply to 44.2.

A sharp decline in house building raised concerns, as subdued demand and rising interest rates meant UK house-building fell at the sharpest pace since May 2020.

“A sharp and accelerated decline in housebuilding was the main area of concern in March,” Moore said.

“Cutbacks to new residential projects in the wake of subdued demand and rising interest rates contributed to the sharpest fall in housing activity across the construction sector for almost three years,” he added.

John Glen, chief economist at the Chartered Institute of Procurement & Supply, said: "A small uplift in construction activity in March shows the sector is heading in the right direction and at a stabilising pace, and with a few uplifting surprises along the way.

Read more: Houses being sold at a £14,000 discount, Zoopla finds

"Strong inflationary pressures remained an obstacle to wider expansion at building companies however along with concerns over consumer affordability rates. With residential building still struggling and falling at the fastest rate since May 2020, it was the bigger projects like HS2 managed by the civil engineering sector that added fuel to the engine of construction growth this month."

Construction accounts for about 6% of the UK's economic output, and the sector recorded quarterly growth of 1.3% in the last three months of 2022.

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