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UK housebuilding activity logged its second-sharpest drop since the early pandemic, reflecting mounting economic headwinds.
The S&P Global/Cips construction survey showed homebuilding fell steeply in August to 40.7, down from 43 in July. It marks the sector’s biggest contraction outside lockdown periods.
Rising interest rates and cooled market conditions are curbing demand and new projects, per the survey compiler. The Bank of England has hiked rates from 0.1% last November to 5.25% now, with likely further increases ahead.
This aligns with recent official data showing housing starts in England down 12% and 27% below 2021 peaks. “High mortgage rates have taken home buying out of reach for many,” noted one economist.
Homebuyers are also hesitating due to near-term economic uncertainty. However, commercial buildings remained stable, and corporations seemed willing to advance capital projects given healthier balance sheets.
Overall, the dramatic housebuilding decline implies the property market slowdown will increasingly drag on UK growth. While commercial resilience provides some offset, mounting financial pressures on households spell trouble for the wider economy.
As the Bank of England continues aggressively tightening policy to tame inflation, the fallout across housing looks set to deepen. With buyers stretched and construction contracting, expect building lulls to become protracted. The property slump may be just getting started.