The UK construction sector contracted strongly in November

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Activity in Britain’s construction sector fell sharply for the third consecutive month in November, led by a continued fall in house building, which was affected by higher interest rates from the Bank of England, a survey showed on Wednesday.

The S&P Global/CIPS UK construction Purchasing Managers’ Index (PMI) fell to 45.5 from October’s reading of 45.6, well below the growth threshold of 50.0 and the second lowest reading since the start of the COVID-19 pandemic.

Low steel and timber prices and generally weaker demand pushed raw material costs down at the fastest pace since July 2009.

The decline in construction contrasts with a more positive, albeit still sluggish, picture of the economy as a whole. The PMI for all sectors rose to 50.2 in November, Wednesday’s report showed, the highest level since July and up from 48.4 in October. This was mainly reinforced by the more optimistic launch of the service on Tuesday.

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Despite the reduction in mortgage rates since the summer, housing construction is the most obvious victim of the series of interest rate hikes by the Bank of England between December 2021 and August this year.

Britain’s official house price series last month showed their first annual decline since 2012, when more than 1 million homeowners had to refinance this year to get higher mortgage rates. Next year, a further 1.5 million Brits will have to switch to the new mortgage rates.

“Home building activity has declined in each of the past 12 months, and the latest decline is still one of the fastest seen since the global financial crisis in 2009,” said Tim Moore, director of the S&P Global Economy.

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Civil engineering projects declined the most since July 2022, and commercial clients also declined, albeit to a lesser extent.

The latest official data shows a 13.4% annual decline in private-sector housing construction in the third quarter of 2023. The global construction volume increased by 2.5%.