The already battered United Kingdom (UK) construction sector is on the cusp of a historic depression. That’s the biggest drop in activity since before the pandemic. According to recently published Census data, the sector reached a new low date since May 2020. This creates a low point in their trajectory, made worse considering rising volatility surrounding the next Budget.
A few factors helped accelerate this decline. Weak client confidence and a dearth of new project starts have more than counterbalanced that burden and heavily weighed on construction activity. Tim Moore, the director of economics at S&P Global Market Intelligence, noted that the November data illustrated a “steep contraction” in the UK construction sector. Primarily, he said, weak client confidence and a limited number of new project starts are weighing on overall activity.
As a result, these challenges have had a lasting impact on the construction sector. Optimism is by extension now at its lowest ebb since December 2022. The expected measures in the UK Budget have caused clients to postpone investment decisions, further worsening the crisis. Commercial construction has been hit hardest, experiencing “severe headwinds” in August.
The overall picture from this survey is decidedly bleak. Innovation experts are cautiously optimistic that the sector’s prospects for future growth may be a bit less grim. Rob Wood, chief UK economist at Pantheon Macroeconomics, expressed skepticism regarding the survey’s findings, stating it is “hard to believe that conditions in the sector are genuinely as bad as during a full lockdown.” He predicted that activity “will continue to be lackluster in the months ahead.”
Matt Swannell, the chief economic adviser to the EY Item Club, provided a stark warning about reading too much into the PMI numbers. He warned us to greet them with a fair amount of skepticism. This sober outlook illustrates a disconnect between survey results and the reality on the ground.
In one of its first major acts, the new UK government reset the bar by promising to deliver 1.5 million homes in England by 2029. This bold agenda means building 300,000 units annually. This pace of building is something we haven’t seen since the 1960s. Still, even meeting this ambitious target would entail a HUGE reversal from the current dire market reality.
Even amid adverse conditions, some analysts believe that the construction sector’s growth could exceed current projections based on survey results. Persistent uncertainty in the economic policy outlook and a lack of client confidence are serious, continuing headwinds.