Construction Market Overview: October 2023

Construction activity slows at its fastest pace since May 2020, as the housing market continues to slow

The ONS have published their construction output data for August 2023, showing that monthly construction output decreased by 0.5% in volume terms, following a upwardly revised decrease of 0.4% in July. This decrease was solely due to a decrease in new work of 1.5%, as repair and maintenance increased 1.0% for the month partially offsetting this. Alongside the monthly figure, construction output increased 0.9% for the three months to August as new work increased 0.9% across the period, alongside a 0.9% increase in repair and maintenance.

Complimenting this, September data from S&P Global/CIPS UK Construction PMI shows that construction activity decreased for the first time in three months and at its fastest pace since May 2020, led by a steep and accelerated fall in Housebuilding. The Index decreased sharply to 45.0 from the 50.8 seen in August and falling below the 50.0 neutral value for the first time since June. However, business activity forecasts for the year ahead remained positive with the number of firms predicting a rise in output continuing to outweigh those forecasting a decline, despite the overall degree of confidence slipping to its lowest since December 2022 due to higher borrowing costs and weaker housing market conditions.

In their latest Q3 2023 trading update, Travis Perkins plc report that in the three months to 30th September 2023 their revenue declined by 1.8%, with like-for-like sales also down 1.8%. It was also stated that Q3 started as expected in Merchanting, with September seeing a notable deterioration in market activity and sentiment. Alongside this when compared to Q3 2022 revenue for Q3 2013 was 3.4% lower, despite being a marked improvement over the first half of 2023.

The DBT construction material price index for all work remained unchanged (0.0%) month-on-month in August and was 2.3% lower than a year earlier, marking the third consecutive annual decrease. Construction material prices for new housing increased 0.5%, with repair and maintenance and other new work falling by 2.8% and 3.7%, respectively in the year to August 2023.

Housing activity continues to slow, as house prices remain largely unchanged into the Autumn

The HMRC report that in August the number of property transactions in the UK totalled 87,010, 1.1% higher than July, marking the third monthly increase, but was 15.6% lower than compared to a year earlier. Transactions for August are now 9.8% lower than the large spike in housing market demand which occurred in January 2020. However, the Bank of England report that in August the number of mortgages approved for house purchase was 45,354, decreasing 8.4% from the 49,444 seen in July, and is 37.3% lower than a year earlier. These figures now mark the lowest volume in six months and are also 30.7% lower than the 2018/19 pre-pandemic average.

Nationwide report that annual house price growth remained unchanged for September at -5.3%, pointing to housing market activity staying weak as we head out of the summer. And Halifax report that annual house prices dropped to -4.7%, largely unchanged from the -4.5% seen in August. On a monthly basis, Nationwide report that house prices were flat (0.0%) for September, following the 0.8% decline seen in August. Halifax report that monthly house price growth fell 0.4% in September, although at a markedly slowed pace of decline compared to August, this is the sixth consecutive monthly fall. Finally, data from the ONS and Land Registry shows that UK house prices increased 0.6% in the twelve months to July 2023, compared to 1.9% seen in the year to June 2023.