The latest UK Construction PMI data signals a modest upturn in overall UK construction output, driven by faster rises in commercial building and civil engineering activity.

However, house building remained by far the weakest-performing category of activity, with output declining at the steepest pace for three years.

Supply conditions continued to normalise in May, as highlighted by the greatest improvement in vendor lead times since August 2009. This helped to alleviate cost pressures across the construction sector, with the overall rate of input price inflation easing to its weakest for 32 months.

But the latest data shows that worries about the impact of higher interest rates and subdued market conditions continue to dampen housing activity.

Work on residential building projects decreased for the sixth month running and at the steepest pace since May 2020. Aside from the pandemic-related downturn, the latest reading for this category of construction activity (42.7) was the lowest for just over 14 years.

Tim Moore, Economics Director at S&P Global Market Intelligence (which produces the PMI data) comments: “May data highlighted a mixed picture across the UK construction sector as solid growth rates in commercial and civil engineering activity contrasted with a steeper downturn in house building.

“Rising demand among corporate clients and contract awards on infrastructure projects meanwhile underpinned the fastest rise in new orders since April 2022.

However, cutbacks to new residential building projects in response to rising interest rates and subdued housing market conditions resulted in the sharpest drop in housing activity for three years. This meant that residential work underperformed the rest of the construction sector by the greatest margin since October 2008”.

In the coming days and weeks most of the UK’s leading housebuilders will produce trading updates. All eyes will be focussed on the numbers they show and the forecasts they produce.

Crest Nicholson announces its first-half results on Thursday. AJ Bell investment director Russ Mould believes Crest Nicholson and other UK house builders face a tough time.

“Shares in FTSE 250 housebuilder Crest Nicholson are down around 10% over the past year but their big rally since the autumn looks to be fizzling out, as markets begin to fret about sticky inflation and whether this means Bank of England base rates (and, by implication) mortgages rates could rise higher than expected for longer than expected”.