Activity in Britain’s construction industry saw an uptick in November, driven by robust demand in commercial and civil engineering projects. However, the growth was uneven, as residential

house-building continued to struggle under the weight of high interest rates, according to a recent industry survey.

The survey, released Wednesday, highlighted a contraction in residential construction, counterbalanced by strong gains in commercial and civil engineering activity. Commercial construction expanded at its fastest pace since May 2022, while residential building experienced its sharpest decline since June. House-building firms attributed this decline to elevated borrowing costs and fragile consumer confidence.

Tim Moore, economics director at S&P Global Market Intelligence, noted that while the construction sector has so far avoided the broader slowdown affecting the UK economy, high borrowing costs are dampening new orders.

The Bank of England (BoE), which reduced interest rates in November for only the second time since 2020, is expected to keep rates steady in December. BoE Governor Andrew Bailey reiterated on Wednesday that any future rate cuts would likely be gradual. Despite the recent rate cut, borrowing costs remain a significant burden for the construction industry.

Confidence among construction firms about the year ahead fell to its lowest level since October 2023. Concerns over declining new orders and rising employment costs led to weaker job creation, with employment growth slowing to a three-month low. Many firms cited increased labor costs as a barrier to hiring, with some turning to subcontractors to manage expenses.

Employers across various industries have also raised concerns about rising social security contributions, announced in the October budget by Finance Minister Rachel Reeves. These contributions are set to take effect in April 2025, further adding to cost pressures.

Input price inflation reached its highest level since May 2023, driven by rising costs of raw materials and labor. The survey noted that this trend is not limited to construction; a separate report on services firms also pointed to growing worries about employment costs.

The broader all-sector Purchasing Managers’ Index (PMI)—which combines data from services, manufacturing, and construction—dropped to 50.9 in November, its lowest level in a year, down from 52.0 in October.

The uneven performance of Britain’s construction industry reflects the broader challenges facing the UK economy. While commercial and civil engineering projects provide a bright spot, the struggles in residential building underscore the ongoing impact of high borrowing costs and subdued consumer confidence. As businesses navigate these pressures, the outlook for the construction sector remains cautious. Photo by Chmee2, Wikimedia commons.