微密圈

Falling confidence has accelerated further with another sharp contraction in construction output, according to new PMI data.

The S&P Global UK Construction Purchasing Managers Index sank to 44.6 in February, down from 48.1 in January, the second consecutive fall below the 50 鈥榥o-change threshold鈥� since February last year.

The latest reading is the lowest for nearly five years with the fall in housebuilding output the steepest decline since 2009, notwithstanding the collapse caused by the pandemic.

The housing sector registered a score of 39.3, the fifth drop in a row, and down sharply on the 44.9 score in January.

Civil engineering activity also tumbled, dropping from 44.6 to 39.5.

But there was a glimmer of hope with commercial activity edging up with a score of 49, from 48.9 the previous month.

New order intakes decreased sharply and to the greatest extent since May 2020 with S&P adding: 鈥淩espondents noted delayed decision-making among clients, reflecting squeezed budgets and concerns about the economic outlook. Some firms also noted the impact of cutbacks to business investment spending plans.鈥�

Tim Moore, economics director at S&P Global Market Intelligence, said: 鈥淲eak demand conditions were attributed to entrenched caution among clients, against a backdrop of subdued consumer confidence and lacklustre economic performance.

鈥淎side from the pandemic, total industry activity decreased at the steepest pace since December 2019. This was led by considerable reductions in residential building and civil engineering work, while a degree of resilience was reported for commercial construction activity. Survey respondents widely cited a lack of new work in the house building segment, due to soft market conditions and the impact of elevated borrowing costs.鈥�

But he said firms continued to remain optimistic about prospects for the rest of the year 鈥渁lbeit less so than on average in 2024 amid increasing concerns about the broader UK economic outlook鈥�. Nearly 40% said there would be a rise in output for the year, compared to 17% forecasting a decline.

Industry commentators said the government faced a critical few weeks to see if its plans to get construction to spearhead wider economic growth were working.

Michael O鈥橲hea, construction partner at law firm, Gowling WLG, admitted: 鈥淭he next month will prove crucial in terms of offering greater certainty on the economy and which direction the construction sector will take moving forward.鈥�

And Kelly Boorman, national head of construction at accountant RSM UK, said the government鈥檚 big announcements in planning reform might actually be working against it.

She added: 鈥淪urprisingly, housing activity plummeted to the lowest level since the pandemic, reflecting a lack of confidence in mandatory housing targets, despite government鈥檚 pledge to remove red tape and accelerate growth. If anything, it has had the opposite effect and discouraged businesses from building until they have clarity around local plans and housing targets.鈥�

Neil Morey, technical director at Thomas & Adamson, said: 鈥淭he fall isn鈥檛 a surprise but the worsening picture will be a concern 鈥� particularly the steep declines in housebuilding and infrastructure, which are key investment priorities for the government.

鈥淚nflation intensifying once again, an uncertain economic backdrop and the high cost of finance are taking their toll on the industry.鈥�

And Brian Smith, head of cost management and commercial at Aecom, said it was only a matter of time before wider economic worries hit construction.

鈥淐onstruction output has persevered valiantly to deliver continued growth in recent months. However, the gloom that has fallen over the broader economy since the autumn appears to have finally caught up.

鈥淒espite the well-known challenges in key sectors like housebuilding, the positive view is that the trajectory of interest rates is creating a more certain environment for developers and funds to press on with investment elsewhere.鈥�