Construction Market Overview: September 2023

Construction activity shows marginal growth for August, as housing activity points to a summer of decline

The ONS have published their construction output data for July 2023, showing that monthly construction decreased by 0.5% in volume terms in July, this growth was solely due to a decrease in repair and maintenance of 1.3%, as new work increased 0.1% for the month. Alongside the monthly figure, construction output was flat for the three months to July as new work increased 0.3% across the period, but was offset by a decrease of 0.4% in repair and maintenance.

In contrast to this, August data from S&P Global/CIPS UK Construction PMI shows that construction activity rose marginally across the month, led by the commercial and civil engineering sectors helping to offset the continued slump in housebuilding. The Index decreased to 50.8 from the 51.7 seen in July signalling a slight increase in overall construction output. However, business activity forecasts for the year ahead were reported as the weakest since January 2023, due to falling sales volumes across construction shown by the fastest decline in new orders for just over three years.

The latest Builders Merchants’ Merchant Index’s findings for Q2 2023 shows that the total value of sales for merchants rose by 7.6% when compared to Q1 2023 but decreased by 4.1% when compared to the same quarter in 2022. Alongside this, the total volume of sales increased 1.3% for Q2 2023, despite prices being 3.3% lower across the quarter.

The DBT construction material price index for all work decreased 1.1% month-on-month in July and was 4.0% lower than a year earlier. Construction material prices for new housing, repair and maintenance and other new work fell by 1.5%, 4.3% and 5.0%, respectively in the year to July 2023.

Housing activity points to a summer of decline, as house prices fall below the peak of August 2022

The HMRC report that in July the number of property transactions in the UK totalled 86,510, 0.8% higher than June, and 16.3% lower than compared to a year earlier. It should be noted that these latest figures will not fully include the impact of the most recent increase in mortgage rates, which will have more impact in the coming months. However, the Bank of England report that in July the number of mortgages approved for house purchase was 49,444, decreasing 9.5% from the 54,622 seen in June, and is 21.7% lower than a year earlier. These figures now mark the lowest volume since February 2023.

Nationwide report that annual house price growth saw a further softening for August as it fell to -5.3% from the -3.8% seen in July, marking the weakest rate since July 2009. And Halifax report that annual house prices dropped further to -4.6% from the -2.5% seen in July, though it should be noted that prices were at a record peak in summer 2022. On a monthly basis, Nationwide report a fall of 0.8% in house prices for August, with the price of a typical home now being 5.3% below the peak seen in August 2022. Halifax report that house price growth fell 1.9% in August following from the 0.4% decrease seen in July, making the largest monthly fall since November 2022. Finally, data from the ONS and Land Registry shows that UK house prices increased 0.7% in the twelve months to June 2023, compared to 1.8% seen in the year to May 2023.