(Bloomberg) --

Britain’s construction industry is bracing for slower growth and higher inflation cutting demand for new homes, delivering the weakest growth since September, a survey of purchasing managers showed.

S&P Global Market Intelligence said its measure of construction output fell to 52.6 in June from 56.4 the month before. That was below the reading of 55 that economists had expected.

“The gloomy UK business outlook and worsening consumer demand due to the cost of living crisis combined to put the brakes on construction growth,” Tim Moore, economics director at S&P Global, said Wednesday. “House building has expanded more quickly than the rest of the construction sector over the course of the pandemic but now finds itself as the worst-performing broad category.”

Concern about the outlook for the economy dragged down firms’ own expectations for the future to the weakest since July 2020 when the UK was in the throes of the coronavirus pandemic. 

Work on residential projects fell for the first time since that year -- despite house prices reaching a record. That suggests caution is increasing among housebuilders along with expectations of a slowdown in the market later this year. 

Analysts say property prices are likely to be held back by higher borrowing costs and the biggest squeeze on consumer incomes in two decades. Builders are also suffering from rising raw materials and labor costs, which are cutting into the margins they earn on projects.

“Construction companies appear braced for a difficult second half of the year as new order growth and business activity expectations fell again in June, reflecting inflation concerns, higher interest rates and less favourable domestic economic conditions,” Moore said. “Measured overall, the degree of optimism across the construction sector is now the lowest seen since July 2020.”

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