The British construction sector has seen its slowest growth since last June
- The S&P Global UK Construction PMI for December was 53.3
The British construction sector saw its smallest growth in six months in December, due to limited house building.
The closely watched S&P Global UK Construction Purchasing Managers’ Index (PMI) stood at 53.3, up from 55.2 in November.
This was the lowest score since June 2024 and lower than the 54.4 forecast by analysts, although any figure above the 50.0 threshold indicates growth, while all below that indicate contraction.
Home construction rates fell for the third month in a row, with survey respondents blaming high borrowing costs, weak demand and consumer confidence.
Construction companies responded to the reduced number of new orders by limiting their purchases of inputs for the first time in eight months.
Homebuilding activity has been subdued over the past three years, partly because financing costs have risen sharply in response to higher interest rates.
Weak market: The British construction sector saw its smallest growth in six months in December
The Bank of England has raised Britain’s key interest rate fourteen times in a row between late 2021 and mid-2023 to try to keep soaring inflation under control.
Although interest rates have recently been lowered from 5.25 percent to 4.75 percent, mortgages still remain much more expensive than they have been in recent years.
Residential was the only construction subcategory in the S&P survey to see output decline in December, while commercial and civil engineering reported rates of 55.0 and 52.9, respectively.
The S&P noted “improving procurement opportunities” in the commercial construction sector, as well as cuts in residential development projects and a shortage of new production to replace completed infrastructure works.
Nevertheless, almost half of respondents expect production to increase in 2025, while only 15 percent expect a decline.
Tim Moore, director of economics at S&P Global Market Intelligence, said “concerns about the demand outlook” were hurting the construction sector’s growth prospects.
He added: ‘Although confidence recovered after a post-Budget slump in November, it was still much weaker than in the first half of 2024.
‘Many businesses reported concerns about capital spending cuts and a bleak outlook for the UK economy.’
The S&P figures come a day after it emerged that service sector employment shrank at the fastest pace in almost four years in December due to lower demand and higher labor costs.
It pointed to “anecdotal evidence” that customer confidence fell after Chancellor Rachel Reeves’ first budget.
Reeves announced in October that employers’ national insurance contributions would rise from April from 13.8 per cent on annual staff salaries above £9,100 to 15 per cent on wages above £5,000.
She also said the national living wage would rise by 6.7 per cent to £12.21 per hour, while the national minimum wage for 18 to 20-year-olds would rise by 16.3 per cent to £10 per hour.
Thomas Pugh, economist at RSM UK, said: ‘While the focus is currently on the costs imposed by the Budget, as government spending and investment starts to flow, largely towards infrastructure investment, this should help boost demand.
“Overall, the dovish message from the construction PMI in the fourth quarter reflects the same trends we see in the broader economy, but there are good reasons to expect 2025 to be a stronger year, both in the construction sector and in the wider economy.’
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