Construction sector shrinks at fastest pace since pandemic, survey suggests
Activity in the UK’s construction sector experienced a significant decline last month, marking the sharpest contraction since the onset of the pandemic. The latest survey from S&P Global revealed that November saw a substantial drop in output, particularly in infrastructure and housebuilding.
One of the primary factors contributing to this decline was the uncertainty surrounding the Budget, which led to a cautious approach among clients in making investment decisions. Commercial construction also faced challenges last month, with concerns over potential Budget measures prompting clients to postpone their investment plans.
The Purchasing Managers’ Index (PMI) for construction plummeted to 39.4 in November, down from 44.1 in October. A score below 50 indicates a contraction in the sector, making this the lowest reading since May 2020. Tim Moore, the economics director at S&P Global Market Intelligence, highlighted the weak client confidence and a lack of new project starts as key factors weighing on construction activity.
The government has set a goal to build 1.5 million homes in England by 2029, equivalent to 300,000 properties annually. However, the industry is facing challenges in achieving this target due to a lack of support. Legislation aimed at streamlining the planning system to accelerate housebuilding is currently in progress.
Employment in the construction sector declined for the 11th consecutive month, with job cuts reaching the highest level since August 2020. This trend is attributed to the lack of new projects to replace completed ones and rising wage costs. Optimism in the sector also reached its lowest point since December 2022, with concerns about client budget cuts and long-term economic growth prospects.
Despite the bleak outlook portrayed by the PMI survey, some analysts believe that the results may be overly pessimistic. Matt Swannell, chief economic adviser at the EY Item Club, suggested that the negative sentiment among firms may have been exaggerated by expectations of tax hikes in the Budget. With the actual tax increases being lower than anticipated, a rebound in the PMI is expected in the coming months.
Rob Wood, chief UK economist at Pantheon Macroeconomics, expressed skepticism about the severity of the conditions in the construction sector indicated by the survey. While he anticipates better growth prospects than suggested by the PMI, he foresees subdued activity in the construction industry in the near future.
