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February 23, 2024

Construction activity falls for third consecutive month

Construction activity falls for third consecutive month

Construction activity declined in November for the third month running, according to the latest S&P Global/CIPS UK Construction Purchasing Managers’ Index (PMI).

The headline figure of 45.5, marginally down from October (45.6), suggested a modest contraction of business. An index of 50.0 would indicate no change in activity, with any number below representing a decline.

The continued slump was led by weak housebuilding activity, with the index at 39.2. The index has shown a decline in housebuilding for each of the past 12 months.

However, Kelly Boorman, partner and national head of construction at audit firm RSM UK, said there could be light at the end of the tunnel.

She said: “The Bank of England’s decision to maintain its base rate at 5.25 per cent for the second month, after 14 consecutive months of hikes is… encouraging, after months of disruption to pipelines with the housing market really feeling the pinch.

“It’s always a tough time of year for construction as we get into winter months, so hopefully this will facilitate some stimulation in the housing market.”

Civil engineering also reported a significant decline, with a headline figure of 43.5. The commercial building index showed more resilience at 48.1.

Total new orders decreased for the fourth month in a row, suggesting a lack of new work to replace completed projects.

Max Jones, infrastructure and construction director at Lloyds Bank, said: “The mood has changed within the sector in recent months.

“While inflation is tempering and there is hope that this could signal costs starting to become more manageable, many contractors are coming to the end of the current cycle of jobs which were priced before peak interest rates and inflation.

“There’s a level of anxiety being felt by contractors with concerns that profits are being squeezed further when the sector is already under significant pressure.”

Brendan Sharkey, construction and real estate specialist at consultancy MHA, also questioned the resilience of the project pipeline.

He said: “Pipelines are looking good on paper, particularly for the second half of the year, but with the economy the way it is and interest rates set to continue as they are, will these projects get deferred?

“The lack of announcements on housing or infrastructure in the Autumn Statement has not helped sector sentiment.”

There were some positives for contractors, as purchasing costs declined at the fastest rate since July 2009. S&P attributed the trend to lower raw material prices and greater competition among suppliers as demand for construction products fell. Average lead times among vendors also got shorter.

Fraser Johns, finance director at Beard Construction, said: “There’s no question that it will be a tough end to the year for UK construction and many firms, with some smaller firms potentially not making it that far amid a growing number of insolvencies.

“As ever, a careful eye is needed on tendering and cost plans in the current climate, as well as a constant dialogue with clients and suppliers.”

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