Published : 4 days ago, on 05/12/2024

LONDON (Reuters) – Activity in Britain’s construction industry picked up in November but growth was lopsided, according to an industry survey that showed weaker residential house-building which is sensitive to high interest rates.

The 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.

Robust demand for commercial and civil engineering projects offset the contraction in residential house-building, Wednesday’s survey showed.

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.

Commercial construction activity expanded at the fastest pace since May 2022. By contrast, residential work declined at the steepest rate since June. House-building firms said high borrowing costs and fragile consumer confidence were impacting demand.

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

Construction firms also grew less optimistic about their prospects in the upcoming 12 months, 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 social security contributions paid by employers that was announced by finance minister Rachel Reeves in her Oct. 30 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.

(Reporting by Suban Abdulla; Editing by William Schomberg and Christina Fincher)