According to a widely watched survey, the UK’s construction industry posted its largest monthly decline since May 2020. A steep downturn in homebuilding caused a fall that was greater than expected in September.
The S&P Global/Cips UK Construction Purchasing Managers’ Index dropped to 45. This is a sharp drop from 50.8 in august and below the 49.9 predicted by economists polled for Reuters.
If the reading is below 50, it means that most companies have reported a contraction in activity.
The data showed that the Bank of England’s fight against inflation is working as the higher interest rates have a negative impact on the demand for goods and services in the UK Economy.
A separate survey released by the BoE Thursday indicated that the labour markets continued to cool.
After a series increases, the BoE kept its interest rate at 5.25 percent in September. James Smith, an economist with the bank ING said that the data from Thursday would “bolster” the case for a second ‘on-hold’ decision in November.
Tim Moore, the economics director of S&P Global Market Intelligence (which compiles the study) said that construction companies blamed this slowdown on the “cutbacks in new residential development projects due to sluggish consumer demand and increasing borrowing costs”.
The residential sector had the worst performance, with a reading 38.1. This is the steepest decline since April 2009, aside from the time when the construction industry was closed down due to the pandemic of coronavirus. Commercial and civil engineering activity also contracted in September, reversing the solid growth seen throughout the spring and summer. Builders noted that worries about the economic outlook had damped client demand.
The grim data is released just one day after the government announced the cancellation of the HS2 rail program. Kelly Boorman is a partner at RSM UK and the national head of construction. She said that scrapping HS2 would undoubtedly derail future activities for many contractors.
She added that “Combined with the delay in mobilizing new infrastructure projects, which the government has not announced yet, this will place some businesses at risk as well as create further uncertainty for the industry.”
The survey showed that employment growth in the sector slowed to its lowest level since June and the use of subcontractors dropped for the first time ever since January.
Data from the BoE’s September Decision Maker Panel (a monthly survey of UK Chief Financial Officers) showed on Thursday that businesses expect the inflation rate to be 4,9% in the coming year.
The rate was slightly higher than the 4.8% reported in August but still well below the 9.5% peak reached in September of last year.
The companies also predicted that wages will increase by 5,2%, an increase from the August 5 percent, but a decrease from the 6,3% in December 2022.
Tomasz Wieladek is an economist with the investment firm T Rowe Price. He said that the survey reflected a rise of 13 percent in petrol prices since August.
He said that the moderate rise in inflation expectations indicates that the weaker demand has led to a easing of the price pressures underlying the oil prices.
The BoE data revealed that employers were having an easier time recruiting workers. 55 percent of businesses reported that it was “a little” or “a lot” harder to recruit new employees. This is down from the 57 percent who said it in the month before and far below the 84 percent they reported last year.