Growing concerns over rising UK interest rates saw housebuilding figures slow at a pace only experienced previously during the peaks of the pandemic and the Global Financial Crisis, according to the latest S&P Global/CIPS UK Construction PMI report.

Published on 6 June, the report showed that residential construction had fallen in May for the sixth month in a row, with the May 2023 decline the sharpest since May 2020. The residential PMI figure for the month was 42.7, with below 50 representing a decline.

Aside from the pandemic-related downturn, the latest reading for residential construction activity (42.7) was the lowest for just over 14 years.

“Worries about the impact of higher interest rates and subdued market conditions continued to dampen housing activity,” the report said.

Mortgage rates have been heading up again as lenders anticipate that the Bank of England will continue to raise its base rate amid ongoing high inflation conditions. The average rate of a two-year fixed-rate mortgage has moved above 5.5%.

"Though overall output in the construction sector showed an improvement for the fourth month in a row, the steepest drop in housebuilding activity since April 2009, barring the initial pandemic lockdown in early 2020, will send a chill down the spine of the UK economy,” Chartered Institute of Procurement & Supply Chief Economist John Glen said.

"The residential subsector is closely linked to consumer confidence and levels of spending. A further hike in interest rates is expected this month, and along with the relentless increase in the cost of living is making buyers hesitate about purchasing homes.”

By contrast, the commercial building sector achieved a PMI of 54.2. That meant that the divergence between commercial and residential building was the highest since 2008.

As a result, overall construction output was up, with a PMI of 51.6 actually ahead of an expected 50.8.