PMI: House building shrinks for first time since beginning of pandemic

A slowdown in the UK economy triggered by the cost of living crisis has led to house building stalling, a closely watched survey published today reveals.

Activity in the UK house building sector dropped for the first time since May 2020, when the country was in the teeth of the most onerous pandemic restrictions, according to S&P Global’s final purchasing managers’ index (PMI) for June.

House building has propelled the UK’s construction industry over the last two years, primarily driven by demand in the property market being stoked by a stamp duty holiday and record-low interest rates.

However, in a complete reversal, it “now finds itself as the worst-performing broad category so far in 2022,” Tim Moore, economics director at S&P Global, said.

Property purchases and mortgage approvals have eased as a result of lenders passing on the Bank of England’s five successive rate hikes.

That cooling in demand has weighed on price growth, with Nationwide’s latest house price index expanding at the slowest rate for several months, weakening incentives for house builders to boost supply.

Softness in housing activity spread to the rest of the construction sector, with the overall PMI falling 52.6 in June, down from 56.4.

“The gloomy UK business outlook and worsening consumer demand due to the cost of living crisis combined to put the brakes on construction growth in June,” Moore added.

Experts at Goldman Sachs have warned the UK is more likely than the US and Europe to tip into a recession.

The housing market has held up relatively well amid the cost of living crisis, mainly due to the weaker macroeconomic environment yet to increase unemployment, giving people confidence to push ahead with big ticket purchases.

The construction sector is still growing, with the latest PMI above the 50 point threshold that separates expansion and contraction.