The Brief: In its UK Construction & Infrastructure Monitor report for the third quarter, the Royal Institution of Chartered Surveyors (RICS) reported a net balance of +17% construction workload activity, down from +30% in the previous quarter. Except for the infrastructure sector, all categories have likewise loosened up, which include private activities in industrial and residential areas.
Why It Matters: RICS attributes the slowdown to macroeconomic and industry factors such as materials and labour shortages. On the other hand, construction sales leads provider Glenigan also predicts a further contraction of project values in the next two years and blames this to the rising cost of materials and falling economic confidence.
Finanze® Foresights: Builder optimism is still impacted by soaring inflation and increased borrowing costs. We expect this to worsen as the Bank of England (BoE) announced today that a looming deep recession will cut at least 500,000 jobs in the country. Although home prices are expected to fall as we head into the following year, many projects are expected to be stalled due to the labour squeeze brought by supply chain issues and skills shortage. Furthermore, demand for homes isn’t guaranteed to pick up as the surge in mortgage costs has already put a lot of pressure on home buying affordability. Its full impact will not yet be reflected on the monthly construction output data that will be released on November 11th since this will still cover September figures when the two-year and five-year fixed rates have not yet stood above 6%. Construction activity will therefore be held back by these factors in the next few months.
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