UK construction activity falls by most in five years, survey shows

By David Milliken

LONDON (Reuters) -Activity in Britain's construction sector fell by the most in more than five years last month, according to a survey that raises questions about whether the government will achieve its target of building 1.5 million homes by mid-2029.

S&P Global's monthly purchasing managers' index for the construction sector fell to 44.3 in July from 48.8 in June, its lowest since May 2020 and below all forecasts in a Reuters poll of economists.

"Dissecting the latest contraction, we can see a fresh and sharp drop in residential building, as well as an accelerated fall in work carried out on civil engineering projects," Joe Hayes, principal economist at S&P Global Market Intelligence, said.

Britain's government has pledged planning reforms to enable the construction of 1.5 million homes before the next election due by mid-2029, which will require a pace of construction last achieved in 1970.

Finance minister Rachel Reeves also loosened budget rules last year to allow more borrowing for public infrastructure investment.

However, building firms in the S&P survey reported site delays, a lack of tender opportunities and a reluctance from customers to commit to contracts. The pace of decline was smallest for commercial work such as shops and offices and greatest for civil engineering.

Staff numbers fell for a seventh month in a row while new orders dropped at the second-fastest pace since 2020.

The downbeat picture contrasts with slightly more upbeat past official data, which showed construction output grew by 1.2% in the three months to the end of May, including a 0.9% increase in new work and a 1.5% rise in repair and maintenance.

(Reporting by David Milliken; Editing by Hugh Lawson)