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Recovery rush as housing growth slows

Growth in the housing sector has slowed almost to a standstill, according to the Construction Purchasing Managers’ Index.

The report from the Chartered Institute of Purchasing and Supply, in conjunction with Markit, pointed to a slowdown in growth across the construction industry.

The housebuilding sector was particularly hard hit, with an index reading of 50.6 for August, where 50 represents no change in activity from the previous month.

Activity is measured on a range of criteria, including new orders, employment and expectations. Building society Nationwide last week reported that house prices fell for the second consecutive month in July.

Meanwhile, a report commissioned by the National Housing Federation said that local councils had mothballed
100,000 housing starts since Regional Spatial Strategies were scrapped in June.

CIPS chief executive David Noble said the residential recovery depended on the banks loosening their mortgage lending criteria.

He said: “The housing market is key to recovery in the longer term but now appears to be in a transition phase. There is still a job to be done in balancing stricter criteria for mortgage lending with demand for new homes, if new
products are to get off the ground and reverse the slump in the residential sub sector.”

Growth continued across the construction industry as a whole in August, according to the CIPS/Markit index, which recorded an overall reading of 52.1. But that compared with readings of 54.1 for July, and 58.4 for June.

The index breaks the construction market down into three categories: housing, commercial, and civil engineering, which includes all public sector work.

“The housing market is key to recovery in the longer term but now appears to be in a transition phase.”

CIPS chief executive David Noble

The reading for commercial fell from 53.7 in July to 52.3 in August, showing that the private sector is itself being hampered by fears about public sector spending cuts affecting the wider economy.

The only bright spot was civil engineering, where the index showed quicker growth for August, at 52.3 compared with 50.4 in July.

But Mr Noble said even this slight quickening could be dampened by the October Comprehensive Spending Review.

He said: “The slight increase in public sector activity disguises continuing uncertainty about the scale of spending cuts we have yet to experience.”

An increase in new work supported the latest rise in activity, according to the survey, but growth in both new orders and output failed to boost employment.

Employment within the UK construction sector decreased during August for a second successive
month, while the use of sub-contractors also reduced.

There was a more positive sentiment concerning future business expectations than there had been the previous month.