UK construction industry sees slowest growth since last June

Britain’s construction sector saw its smallest growth for six months in December due to curtailed housebuilding work.

The eagerly-watched S&P Global UK Construction Purchasing Managers’ Index (PMI) gave a reading of 53.3, down from 55.2 in November.

This was the lowest score since June 2024 and below the 54.4 forecast by analysts, although any figure above the 50.0 threshold denotes expansion, while all numbers under indicate contraction.

Housebuilding levels shrank for the third successive month, with survey respondents blaming high borrowing costs, as well as weak demand and consumer confidence.

Construction companies responded to the reduced volume of new orders by cutting their input buying for the first time in eight months.

Housing development activity has been subdued over the past three years due partly to borrowing costs rising sharply in response to higher interest rates.

The Bank of England hiked the UK base rate on 14 consecutive occasions between late 2021 and mid-2023 to try and control soaring inflation.

While it has recently cut interest rates from 5.25 per cent to 4.75 per cent, mortgages remain much more expensive than they have been for several years.

Residential work was the only construction sub-category in S&P’s survey to see output fall in December, while commercial activity and civil engineering reported readings of 55.0 and 52.9, respectively.

The S&P noted ‘improving tender opportunities’ in the commercial building industry, but cutbacks to residential development projects and a shortage of new business to replace finished infrastructure work.

Nonetheless, almost half of those interviewed expect output to expand during 2025, with just 15 per cent anticipating a decline.

Tim Moore, economics director at S&P Global Market Intelligence, said ‘concerns about the demand outlook’ negatively affected the construction sector’s growth forecasts.

He added: ‘Although confidence recovered after a post-Budget slump during November, it 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.’

S&P’s figures come one day after it revealed that service industry employment shrank at its fastest pace for nearly four years in December due to lower demand and higher payroll costs.

It pointed to ‘anecdotal evidence’ of client confidence decreasing after Chancellor Rachel Reeves’ first Budget. 

Reeves announced in October that employers’ National Insurance contributions would go up from 13.8 per cent on annual staff salaries above £9,100 to 15 per cent on wages exceeding £5,000 from next April.

She also said the National Living Wage would grow by 6.7 per cent to £12.21 per hour, while the National Minimum Wage for 18 to 20-year-olds would rise by 16.3 per cent to £10 per hour.

Thomas Pugh, economist at RSM UK, said: ‘While the focus is currently on the costs imposed by the Budget, as increased Government spending and investment begins to flow, much of it on infrastructure investment, this should help to boost demand. 

‘Overall, the subdued message from the construction PMI in Q4 reflects the same trends we are seeing in the broader economy, but there are good reasons to expect 2025 to be a stronger year, both in the construction industry and the wider economy.’ 

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