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| UK construction activity in July falls at steepest rate since Covid | |
| (32 minutes later) | |
| Collapse in housebuilding underscores challenge for government in meeting its target of building 1.5m new homes | |
| Business live – latest updates | Business live – latest updates |
| UK construction activity fell last month at the sharpest rate since the height of the Covid pandemic amid a collapse in housebuilding, underscoring the challenge facing the government to meet its 1.5m new homes target. | UK construction activity fell last month at the sharpest rate since the height of the Covid pandemic amid a collapse in housebuilding, underscoring the challenge facing the government to meet its 1.5m new homes target. |
| The figures from S&P Global Market Intelligence showed activity in the sector fell in July at the steepest pace since May 2020, during the first UK coronavirus lockdown. | The figures from S&P Global Market Intelligence showed activity in the sector fell in July at the steepest pace since May 2020, during the first UK coronavirus lockdown. |
| The data provider said a sharp drop in residential building pulled down its monthly purchasing managers index (PMI) for the UK construction sector as a whole, alongside a plunge in civil engineering and softer downturn in the commercial sector. | The data provider said a sharp drop in residential building pulled down its monthly purchasing managers index (PMI) for the UK construction sector as a whole, alongside a plunge in civil engineering and softer downturn in the commercial sector. |
| Compiled from a survey of about 150 construction companies, the survey is closely monitored by the Treasury and the Bank of England for early warning signs from the economy. | |
| Threadneedle Street is widely expected to cut borrowing costs on Thursday, with financial markets putting the odds of a quarter-point reduction at 95%, amid growing economic concerns. Unemployment is rising, inflation is sticky, output shrank in April and May, and global trade is reeling from Donald Trump’s latest round of punitive country-specific tariffs, which are due to come into force on Thursday. | |
| Figures published on Tuesday showed that last month the UK services sector recorded its biggest drop in new orders in almost three years. | |
| Joe Hayes, a principal economist at S&P Global Market Intelligence, said: “Forward-looking indicators from the survey imply that UK constructors are preparing for challenging times ahead. | Joe Hayes, a principal economist at S&P Global Market Intelligence, said: “Forward-looking indicators from the survey imply that UK constructors are preparing for challenging times ahead. |
| “Anecdotally, companies reported a lack of tender opportunities and a hesitancy from customers to commit to projects. Broader themes of uncertainty, both domestically but also internationally, will do little to reignite investment appetites.” | “Anecdotally, companies reported a lack of tender opportunities and a hesitancy from customers to commit to projects. Broader themes of uncertainty, both domestically but also internationally, will do little to reignite investment appetites.” |
| The headline UK construction PMI fell from 48.8 in June to 44.3 in July, on a scale where a reading of 50.0 separates growth from contraction. The housing activity index, a subcomponent of the overall score, fell from 50.7 in June to 45.3 in July. | The headline UK construction PMI fell from 48.8 in June to 44.3 in July, on a scale where a reading of 50.0 separates growth from contraction. The housing activity index, a subcomponent of the overall score, fell from 50.7 in June to 45.3 in July. |
| The figures will raise fresh questions about Labour’s target of building 1.5m new homes by the end of the parliament. Housing experts have said the goal is unlikely to be met, while industry bosses have suggested that the government significantly overestimated how many new homes could be built. | |
| The government is pushing to drive up housebuilding through changes to planning rules, proposals for a new generation of new towns, and £39bn of additional funding for social housing. | |
| However, analysts warn that the building trade is struggling with crippling labour shortages and other mounting economic headwinds that could stifle investment in housebuilding, including stubborn inflationary pressures and tax rises such as April’s jump in employers’ national insurance contributions (NICs). | |
| Matt Swannell, the chief economic adviser to the EY Item Club, said: “Businesses will continue to face a difficult operating environment as labour costs remain high due to ongoing labour shortages, as well as higher NICs and national living wage. | Matt Swannell, the chief economic adviser to the EY Item Club, said: “Businesses will continue to face a difficult operating environment as labour costs remain high due to ongoing labour shortages, as well as higher NICs and national living wage. |
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| “The outlook for housebuilding in particular is mixed as the effects of planning reforms are counter-balanced by elevated construction costs and labour market shortages.” | “The outlook for housebuilding in particular is mixed as the effects of planning reforms are counter-balanced by elevated construction costs and labour market shortages.” |
| There is mounting speculation about tax rises in Rachel Reeves’ autumn budget, despite business groups warning that further increases could hit the chancellor’s ambition to drive up economic growth. | There is mounting speculation about tax rises in Rachel Reeves’ autumn budget, despite business groups warning that further increases could hit the chancellor’s ambition to drive up economic growth. |
| On Wednesday the National Institute of Economic and Social Research said the chancellor could be facing a shortfall in the public finances worth up to £50bn at the autumn budget. | |
| However, ministers are hopeful that Britain’s economy could turn a corner, with support from further Bank of England rate cuts easing some of the financial pressure on households and businesses. Financial markets anticipate at least two further reductions in borrowing costs by December 2026, taking the base rate to 3.5%. | |
| Elliott Jordan-Doak, a senior UK economist at the consultancy Pantheon Macroeconomics, said: “We still think the fundamentals point to sentiment in the construction sector gradually improving in the coming months. | Elliott Jordan-Doak, a senior UK economist at the consultancy Pantheon Macroeconomics, said: “We still think the fundamentals point to sentiment in the construction sector gradually improving in the coming months. |
| “The Bank of England will likely cut interest rates in August, reducing borrowing costs for businesses, and the shock from tariff uncertainty will continue to fade. Moreover, the government’s focus on investment spending and planning reforms should also provide support to the construction industry. The PMI should recover over the coming months.” |