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CONSTRUCTION SECTOR DOWNTURN EASES IN DECEMBER
December data indicated another solid fall in UK construction activity , although the rate of decline eased to the slowest since the current phase of decline began last September .
A sustained slump in house building was the main factor holding back construction output , which survey respondents linked to elevated interest rates and subdued confidence among clients .
Improving supply conditions continued in December , with delivery times for construction items shortening for the tenth month in a row . Price discounting among suppliers contributed to a moderate fall in average cost burdens across the construction sector at the end of 2023 .
At 46.8 in December , the headline S & P Global UK Construction Purchasing Managers ’ Index ( PMI ) – a seasonally adjusted index tracking changes in total industry activity – was below the neutral 50.0 mark for the fourth month running . However , the index was up from 45.5 in November and the highest for four months .
House building remained the weakest-performing category of construction work in December ( index at 41.1 ), despite the rate of decline easing to its slowest since July 2023 .
Civil engineering activity ( index at 47.0 ) also posted a softer pace of contraction at the end of last year .
Commercial construction meanwhile declined only modestly ( index at 47.6 ), but the speed of the downturn accelerated to its fastest since January 2021 .
Some firms noted that concerns about the domestic economic outlook , alongside elevated borrowing costs , had led to greater caution among clients . Total new work decreased at the slowest pace since the current period of decline began in August 2023 . Subdued customer demand across the house building sector was often cited as a factor leading to reduced order books .
A softer decline in new work and hopes of a turnaround in demand conditions during 2024 contributed to a renewed rise in employment numbers in December . However , the rate of job creation was only marginal .
Mirroring the trend for construction output , latest data indicated the slowest fall in purchasing activity for four months . Where a decline in input buying was reported , this often reflected a lack of new work to replace completed projects .
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Lower demand for construction products and materials resulted in shorter wait times for suppliers ’ deliveries in December . Improving vendor performance has been recorded in each month since March 2023 .
Survey respondents often noted that competition for market share among suppliers had led to price discounting at the end of last year . Average cost burdens across the construction sector decreased for the third month running in December , albeit only modestly and at the slowest pace during this period . Finally , latest data indicated somewhat upbeat business expectations at UK construction companies for output levels during the year ahead .
Around 41 % of the survey panel anticipate an increase in business activity over the course of 2024 , while only 17 % predict a decline . Anecdotal evidence suggested that subdued forecasts for the UK economy were a key concern , while hopes of reduced interest rates and a turnaround in market confidence were factors cited as likely to boost construction activity .
Tim Moore , Economics Director at S & P Global Market Intelligence , which compiles the survey said : “ Construction companies experienced another fall in business activity at the end of 2023 as weak order books meant a lack of new work to replace completed projects . House building was the worst-performing area of construction activity , but even in this segment there were signs that the downturn has started to ease .
“ Elevated borrowing costs and a subsequent slump in market confidence were the main factors leading to falling sales volumes across the construction sector in the second half of 2023 . Survey respondents also continued to cite worries about the broader UK economic outlook , especially in relation to prospects for commercial construction .
“ However , expectations of falling interest rates during the months ahead appear to have supported confidence levels among construction companies . December data indicated that 41 % of construction firms predict a rise in business activity over the course of 2024 , while only 17 % forecast a decline . This contrasted with negative sentiment overall at the same time a year earlier .”