UK construction sector downturn eases in December

The downturn in the UK construction sector eased a little in December, according to a survey released on Friday.

The S&P Global construction purchasing managers’ index printed at 46.8, remaining below the 50.0 mark that separates contraction from expansion for the fourth month in a row amid a continued slump in the house building sector.

However, it was above November’s reading of 45.5 and while housebuilding remained the weakest of the categories - with the index at 41.1, up from 39.2 in November - the rate of decline eased to its slowest since July 2023. The index for civil engineering activity printed at 47.0, meanwhile, which was also a softer pace of contraction.

Commercial construction declined only modestly, with the index down to 47.6 in December from 48.1 the month before, but the speed of the downturn accelerated to its fastest since January 2021. Some firms said concerns about the domestic economic outlook and high borrowing costs had led to greater caution among clients.

Tim Moore, economics director at S&P Global Market Intelligence, 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."

Capital Economics said: "In the near term, higher financing costs, and concerns around capital values, will keep developers on the sidelines for now and construction activity will stay weak over the next few months. But with capital values close to a trough and the bank of England set to start cutting in June, construction is set for a gradual recovery over H2 2024."