David Milliken

LONDON (Reuters – The construction of new British homes nearly halted in March as builders feared that rising interest rates, and the price squeeze, would restrict demand. This was revealed by a closely-watched survey on Wednesday.

May’s S&P Global/CIPS construction Purchasing Managers’ Index (PMI) fell to 56.4 in May from 58.2 in April, the lowest reading since January and broadly in line with economists’ median expectation in a Reuters poll.

This was due to a plunge in the housing component, at 50.7 it reached its lowest point since May 2020.

“Residential construction activity was close to stagnation in May, which represented its worst performance for two years amid signs of softer demand and a headwind from low consumer confidence,” Tim Moore, economics director at S&P Global (NYSE:), said.

Britain’s building industry survived the crisis relatively well, thanks to a surge in house prices. The March output was 3.7% higher than its level before COVID, which is a much better result than in most other industries.

But, construction isn’t immune to wider headwinds which slow Britain’s economic growth.

In April, consumer price inflation reached a record high of 9.0%, which was a new 40-year peak. Meanwhile, Britain’s most closely monitored measure of consumer sentiment (GfK), fell to its lowest level since 1974.

According to PMI data released Tuesday, businesses across Britain were also affected by low consumer confidence.

PMI all-sector – which combines services and manufacturing data – fell to 53.4 in February, down from 58.2 last April.

The Bank of England raised interest rates by 1.0% to May despite a worsening outlook for growth. This is their highest rate since 2009. The financial markets expect rates to reach 3% next November.

Construction companies saw a decline in optimism for the coming year due to high inflation and increasing borrowing costs. This was the reason why it has been at its lowest level since August 2020.

These figures showed that supply chain delays were reduced by most in the time period since February 2020. The rate of input cost inflation declined from its record April reading, however it is still very close to its 25-year high.