Construction momentum fades amid fragile consumer confidence
Construction activity in the UK economy fell to a six-month low in December, a new survey shows, with momentum slowing across the sector.
Housebuilding activity slipped deeper into contraction, according to S&P’s construction purchasing managers’ index (PMI), while growth in commercial and civil engineering work slowed compared to the month before.
This meant that the overall PMI registered 53.3 in December, down from 55.2 in November and the lowest level since June. Anything above 50 indicates expansion.
“The slowdown in overall construction output growth reflected more subdued demand conditions in recent months, as illustrated by a further moderation in new order growth during December,” Tim Moore, economics director at S&P Global Market Intelligence said.
Firms pointed to “fragile” consumer confidence and uncertainty about the future path of interest rates as contributing factors to the weakness in demand.
Confidence in the economy has taken a hit since the Budget amid concerns about the likely impact of the government’s tax hikes.
Forecasts suggest that the tax rises might contribute to stickier inflationary pressures, which will keep interest rates higher for longer.
Money markets now expect the Bank of England to cut interest rates just twice in 2025.
With demand weakening, firms cut back on buying inputs for the first time in eight months. In some cases, this was linked to “tighter inventory management”.
Construction firms also faced rising cost pressures. Purchase prices increased at a “robust” pace in December while sub-contractors increased their rates at the fastest pace in 20 months.
While the survey showed that business confidence had improved substantially compared to November, it remained below the levels seen earlier in the year.
“Confidence…was still much weaker than in the first half of 2024. Many firms reported worries about cutbacks to capital spending and gloomy projections for the UK economy,” Moore said.
Still, nearly half (48 per cent) of surveyed firms expected output to increase while just 15 per cent predicted a decline.