Title : UK construction activity falls by most in over two years – PMI

Aug 04, 2022 04:40AM ET

By: AnalysisWatch

A survey showed Thursday that British construction firms recorded the biggest drop in activity in more than two years last month, as housebuilders cut back on work and civil engineering firms faced a shortage of new contracts.

The S&P Global/CIPS construction PMI for July also showed some easing of inflationary pressures, but it probably comes too late to influence the Bank of England, which economists expect to raise interest rates by half a percentage point later on Thursday.

The construction PMI sank to 48.9 in July from 52.6 in June, its lowest level since May 2020, during the fallout from the COVID-19 pandemic, and only the second time since then that it has fallen below the 50 level that separates growth from contraction.

Economists polled by Reuters had expected the index to hold roughly steady at 52.0. The most recent official data indicated that construction output had grown by 4.7% through May.

Cost-of-living pressures, rising interest rates, and growing recession risks to the U.K. economy are taking their toll on construction activity, according to Global GIMarket S&P.

UK consumer price inflation hit a 40-year high of 9.4% in June, and some economists believe it could reach 15�rly next year as energy prices continue to rise.

The PMI showed construction materials costs rose by the least amount since March 2021, as steel and lumber prices fell, but continued labor shortages put upward pressure on wages and acted as a drag on growth.

Homebuilders said economic uncertainty was causing them to hold back on new projects, while civil engineering contractors were struggling to find new projects once existing ones were completed. However, commercial work-such as restaurant and office remodeling-remained strong.