Since the coronavirus pandemic in 2020, work in the UK’s construction industry is contracting at a fast rate with high costs and tax rises. The sector is vital for the Labour government’s plans for a house building boom and improvements in infrastructure, with the private sector expected to boost the UK’s economic growth.
But S&P Global’s latest purchasing manager’s index (PMI) release suggests construction is suffering from a fall in residential building and civil engineering projects. The survey of about 150 companies showed another contraction in output as the PMI reading fell from 48.8 in June to 44.3 the following month. A reading of over 50 shows expansion, anything below is contraction.
Firms said site delays, lower volumes of business orders and weaker consumer confidence had dampened activity. Respondents also said there was less work being undertaken on public sector projects, which is a worrying sign for the Labour government as its committed to build motorways, power plants and railways.
S&P Global said expectations for the next year were below long-term averages, in signs the bleakness surrounding UK economic prospects was weighing on businesses. Layoffs and drop in recruitment also saw payroll numbers continue to drop for the seventh consecutive month, though the decline in headcount was softer than in previous months.
The data follows an update from the Minerals Product Association (MPA) last month showing that demand for concrete has dropped to its lowest level since 1963, with sales down nearly 12 per cent in the three months to June. The MPA also warned that demand for other building materials such as mortar and sand also dropped to “historically low levels”.
The number of new home registrations in London has more than halved as firms shy away from building in the capital. Just 904 new homes were registered in the second quarter of this year, down from 2,191 in the second quarter of 2024, according to the National House Building Council (NHBC). London continues to be affected by the new building safety regime for high rise buildings and low building rates from housing associations.
London is “by some accounts” the most expensive city in the world to build in, according to the Greater London Authority (GLA).
Head of financial analysis at AJ Bell, Danni Hewson, said: “The news won’t be welcomed by either Rachel Reeves (Chancellor) or Angela Rayner (deputy prime minister and minister for housing and communities), both of whom want to see more houses built to alleviate affordability problems”.
He added: “Indeed, Labour are targeting 1.5 million new homes over the course of this Parliament, which might be starting to look overly ambitious. Weak construction activity will also feed into the broader economic growth figures which determine how much wiggle room the Chancellor has come the Budget in the autumn”.
However, there are some signs the beleaguered construction industry might well be turning a corner as higher demand, higher government investment and lower interest rates could be in the offing.
Early trading updates from housebuilders Bellway and brick-maker Ibstock, plus a new report from construction firm McBains, suggest the industry is probably entering a period of recovery.
In fact, medium-term confidence is “buoyant”, according to director at McBains, Colin McCaffrey, with growth to be found in private housing, infrastructure and industrial work. Industrial and infrastructure output is set to rise by around one per cent next year, while private housing output is expected to rebound with four per cent growth in 2025 and seven per cent in 2026, according to McBains’ report.
Andy Jalil
The writer is our foreign correspondent based in the UK
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