PMI: UK Construction sector showing signs of sharp slowdown while Eurozone heads for recession
Susannah Streeter, senior investment and markets analyst, Hargreaves Lansdown: ‘’Pessimism is seeping through the construction sector, with activity slowing to a snail’s pace in November as worries about a looming recession causes orders to slow. It’s a stark change of pace from October when there appeared to be pent up demand for building work, with a reading of 53.2. Given that anything below 50 indicates a contraction, November’s temperature check of 50.4 indicates that the sector is still growing, but only just, as jobs on the books disappear, with activity dipping back towards the summer lows. The residential market is particularly weak and has dragged down overall performance. High mortgage rates combined with other cost-of-living headwinds have led to delayed and cancelled sales, or projects being scaled back to save money.
Shares of housebuilders and construction companies were mired in choppy trading after the update was released. To a large extent, expectations of a sharp slowdown in the housing market have already been priced in, but there will be disappointment that resilience across the sector is ebbing away as inflationary pressures continue to weigh on the economy, and companies and consumers become more cautious.
A wider snapshot of business activity across the Eurozone showed that optimism is also low, with activity falling for a fifth month in a row in November. It is clear that surging inflation, combined with higher interest rates, is eating into budgets. The data is a fresh indication that the Eurozone is heading into a shallow recession, but a much colder winter and high demand for oil and gas could see energy prices shoot up again, piling on more pressure for companies. For now, the oil price is being pushed lower, with a barrel of Brent Crude trading below $82, as concerns about the effect of central bank tightening on demand across the global economy take precedence over supply concerns.’’