Britain’s builders suffered their worst month since the summer last month, as falling property prices and a looming recession hit the sector.
Output in the construction section, as measured by the monthly purchasing managers’ index (PMI), fell for the first time since August last month and registered its fastest drop in activity and new orders since May 2020. December’s reading slumped to 48.8, below the 50 mark that separates growth from contraction, and a decline from 50.4 in November.
Construction companies’ outlook for this year turned negative for the first time since the pandemic and for only the sixth time on record, as the UK economy suffers from falling growth and persistently high inflation, according to S&P Global, which compiles the survey.
Lewis Cooper, economist at S&P Global Market Intelligence, said the construction sector had been hit by “weak client demand, driven partly by higher prices amid ongoing inflationary pressures”. He added: “The challenging environment in December was subsequently reflected in pessimism amongst firms towards activity levels over the coming year, with business confidence downbeat for only the sixth time since the survey began in April 1997.”
Building companies are energy intensive and thus heavily exposed to rising energy costs and often a bellwether for the state of the economy because house building and home improvements slow during a downturn.
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The PMI survey said that employment in the sector dropped last month, the first decline since January 2021, because of weak pipelines of new work. Output in house building and civil engineering both declined but commercial property was one of the few bright spots, as activity rose again in December.
“Builders were reining back on recruitment, unconvinced there will be enough growth in the UK economy in 2023 to justify additional expenditure when margins remained so squeezed,” John Glen, chief economist at the Chartered Institute of Procurement & Supply, said.
Economists expect the UK housing market to suffer a double-digit fall in prices this year, driven by the higher cost of borrowing raising mortgage costs for households already suffering from high inflation. House prices fell 1.5 per cent last month, the fourth consecutive month of declines, according to data from Halifax.
Construction companies reported another climb in their costs last month, caused by the still-high cost of fuel, energy, and materials. The overall rate of inflation eased, however, to the slowest in two years. The PMI readings for the services and manufacturing sectors also remained in contractionary territory last month.
Max Jones, director of Lloyds Bank’s infrastructure and construction team, said: “If running costs continue to increase, the industry’s ‘squeezed middle’ could find itself bearing the brunt of price rises, without being able to move them along the supply chain.”
