The UK’s construction sector is experiencing its most significant contraction since the onset of the COVID-19 pandemic, according to recent survey data. The rapid downturn in activity has set alarm bells ringing among economists, especially as uncertainty hangs in the air before the expected Budget delivery next week.
The newest results reveal that feeble client sentiment is damping down construction activity. On top of that, the continuing lack of new project starts is deepening the crisis. Tim Moore, economics director at S&P Global Market Intelligence, noted, “November data revealed a sharp retrenchment across the UK construction sector as weak client confidence and a shortfall of new project starts again weighed on activity.”
Rob Wood, chief UK economist at Pantheon Macroeconomics, described the situation as “catastrophic.” He expressed skepticism regarding the severity of the situation, stating it is “hard to believe that conditions in the sector are genuinely as bad as during a full lockdown.”
This drastic drop in confidence among the construction sector marks the lowest level since December of last year. Even the PMI—Purchasing Managers’ Index—the most widely watched score in the PMI set, reached new record lows. This is the worst showing for the sector since May 2020.
For one, commercial construction has recently been said to be experiencing “severe headwinds.” Reputational risk client concerns about possible budget measures have caused clients to delay investment decisions, creating a downward cycle. As a result, experts like Matt Swannell, chief economic adviser to the EY Item Club, advised that the PMI figures should “be approached with a healthy degree of scepticism.”
Despite many hurdles, the administration remains undeterred as it works toward its $30 billion goal. It’s committed to an average of 1.5 million new homes across England by 2029. This target translates to an estimated 300,000 properties per year, a level of construction not witnessed since the 1960s. Yet with activity levels continuing to trend downward, making this goal seems like a pipe dream.
Rob Wood from the construction sector is expecting “activity to remain muted over the coming months.” He’s keeping a close eye on changing industry conditions, though. The uncertainty surrounding future projects and investment decisions is likely to linger until clearer economic signals emerge following the Budget announcement.