In November, the UK’s construction sector was dealt a shuddering blow. This drop represented the lowest level of activity since the onset of the pandemic. The decline, reported by the latest Purchasing Managers’ Index (PMI) survey, reflects the fastest shrinkage in the industry since May 2020. Political issues, notably the unfolding crisis surrounding next week’s first Budget, have further rattled client confidence. As a result, many of our clients are contemplating postponing their own investment decisions.
Tim Moore, the economic director at S&P Global Market Intelligence, noted the deepest drop in new UK construction came in. The November data certainly lit up the signal flare on this steep retrenchment. “Weak client confidence, combined with a pipeline clogged by a severe lack of new project starts have continued to weigh heavily on activity levels,” he cautioned. The PMI index score for construction fell to its lowest point since May 2020, reflecting dire conditions for the industry.
The results from the survey are especially grim considering optimism among construction industry executives has plummeted to the lowest level since December of 2022. Overarching worries about possible measures in the Budget have bred a climate of uncertainty, forcing many clients to postpone vital investment decisions. Commercial construction in particular saw “severe headwinds” last month, in addition to the greater challenges already plaguing the sector.
EY Item Club’s chief economic adviser, Matt Swannell, provided a very clear warning note on these PMI figures. The rolling character of their consequences, cautioning that they merit looks with “healthy scepticism.” This feeling is similar to the view expressed by Rob Wood, chief UK economist at Pantheon Macroeconomics. Wood expressed skepticism regarding the severity of current conditions, stating it is “hard to believe that conditions in the sector are genuinely as bad as during a full lockdown.”
Despite these challenges, the UK government remains committed to ambitious housing targets, pledging to build 1.5 million homes in England by 2029. Building this many properties each year would mean a construction rate of 300,000 new properties annually. This is an achievement the industry hasn’t made since the 1960s. Under today’s economic realities and a dwindling activity base, accomplishing these goals will be increasingly challenging.