UK housebuilding plunges as interest rates rise

LONDON, Jul 6 (Reuters) – Britain’s home construction fell in June at the steepest pace in more than 14 years, apart from two months before the COVID-19 pandemic, as higher borrowing costs slowed down the demand and weighed on the construction sector in general. a poll showed Thursday.

The S&P Global/CIPS construction Purchasing Managers’ Index (PMI) fell to a five-month low of 48.9 in June from 51.6 in May, below economists’ forecast of 51.0 in a survey of Reuters and the 50 level that divides growth from contraction.

The decline was driven by a much steeper decline in the homebuilding component, which fell to 39.6 from 42.7, its lowest level since May 2020 and pre-2020 lowest since April 2009, when the global financial crisis hit home loans.

“Respondents commented widely on cutbacks in new residential construction projects and increased caution among customers in response to rising interest rates,” said Tim Moore, director of economics at S&P Global Market Intelligence.

Last month, the Bank of England (BoE) unexpectedly raised interest rates from 4.5% to 5%, and typical interest rates on two-year fixed-rate residential mortgages, the most common form of financing for buyers, have risen above 6.5%, according to data provider Moneyfacts.

“It is therefore not surprising that homebuilders are slowing down their workflow and acting cautiously to protect their margins,” said Kelly Boorman, national director of construction at accounting firm RSM UK.

Big increases in exchange rates, which underpin mortgage financing costs, often precede big drops in home starts, according to a Reuters analysis of the past 35 years.

Official data already shows falls in housing construction.

Figures for April showed total construction volumes were 3.6% higher than a year earlier, but new homes fell 6.1%, the biggest annual drop since January 2021.

The PMI survey showed that civil engineering and commercial construction continued to grow reasonably in June, driven by large infrastructure projects and renovation work.

However, concerns about the general economic outlook led to a small drop in new orders and increased caution among customers.

Input costs fell for the first time since January 2010 on lower fuel, steel and lumber prices, which may ease some of the BoE’s inflation concerns, while business confidence fell to its level. lowest since January.

S&P’s all-sector PMI, which includes services and manufacturing PMI data released earlier in the week fell to a three-month low of 52.5 in June from 53.8 in May.

Reporting by David Milliken, graphic and additional reporting by Andy Bruce; edited by Toby Chopra and Alexander Smith

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