Construction Downturn Eases in December

DECEMBER 2023 saw another step in the UK construction downturn, although the rate of decline eased to the slowest since the current phase of decline began in September.

A sustained slump in house building was the main factor holding back construction output, which survey respondents linked to elevated interest rates and subdued confidence among clients.

Improving supply conditions continued in December, with delivery times for construction items shortening for the tenth month in a row. Price discounting among suppliers contributed to a moderate fall in average cost burdens across the construction sector at the end of 2023.

At 46.8 in December, the headline S&P Global UK Construction Purchasing Managers’ Index (PMI) – a seasonally adjusted index tracking changes in total industry activity – was below the neutral 50.0 mark for the fourth month running. However, the index was up from 45.5 in November and the highest for four months.

Construction Downturn

House building remained the weakest-performing category of construction work in December (index at 41.1), despite the rate of decline easing to its slowest since July 2023. Civil engineering activity (index at 47.0) also posted a softer pace of contraction at the end of last year. Commercial construction meanwhile declined only modestly (index at 47.6), but the speed of the downturn accelerated to its fastest since January 2021. Some firms noted that concerns about the domestic economic outlook, alongside elevated borrowing costs, had led to greater caution among clients.

Total new work decreased at the slowest pace since the current period of decline began in August 2023. Subdued customer demand across the house building sector was often cited as a factor leading to reduced order books.

A softer decline in new work and hopes of a turnaround in demand conditions during 2024 contributed to a renewed rise in employment numbers in December. However, the rate of job creation was only marginal.

Mirroring the trend for construction output, latest data indicated the slowest fall in purchasing activity for four months. Where a decline in input buying was reported, this often reflected a lack of new work to replace completed projects.

Lower demand for construction products and materials resulted in shorter wait times for suppliers’ deliveries in December. Improving vendor performance has been recorded in each month since March 2023. Survey respondents often noted that competition for market share among suppliers had led to price discounting at the end of last year. Average cost burdens across the construction sector decreased for the third month running in December, albeit only modestly and at the slowest pace during this period.

Finally, latest data indicated somewhat upbeat business expectations at UK construction companies for output levels during the year ahead. Around 41% of the survey panel anticipate an increase in business activity over the course of 2024, while only 17% predict a decline. Anecdotal evidence suggested that subdued forecasts for the UK economy were a key concern, while hopes of reduced interest rates and a turnaround in market confidence were factors cited as likely to boost construction activity.


Downturn Easing

Tim Moore, Economics Director at S&P Global Market Intelligence.

Tim Moore, Economics Director at S&P Global Market Intelligence, which compiles the survey said: “Construction companies experienced another fall in business activity at the end of 2023 as weak order books meant a lack of new work to replace completed projects. House building was the worst-performing area of construction activity, but even in this segment there were signs that the downturn has started to ease.

“Elevated borrowing costs and a subsequent slump in market confidence were the main factors leading to falling sales volumes across the construction sector in the second half of 2023. Survey respondents also continued to cite worries about the broader UK economic outlook, especially in relation to prospects for commercial construction.

“However, expectations of falling interest rates during the months ahead appear to have supported confidence levels among construction companies. December data indicated that 41% of construction firms predict a rise in business activity over the course of 2024, while only 17% forecast a decline. This contrasted with negative sentiment overall at the same time a year earlier.”

Green Shoots

Brendan Sharkey, Construction and Real Estate Specialist at MHA, commented:

Brendan Sharkey, Head of Construction and Real Estate at MHA MacIntyre Hudson.

“December’s PMI data shows another decline, continuing the theme from last year. There weren’t many construction businesses that escaped unscathed in 2023. However, while the construction industry is likely to have a slow start as we go into Q1 2024 and there may be some casualties, we will begin to see green shoots of recovery as the year progresses.

“The expectation of a cut in interest rates is positive news for housebuilders. Some will already have factored that in, but those that haven’t will be fast-forwarding into planning phases, which will help create momentum and a more buoyant mood than last year.

“Surprisingly, there was no support for the industry during the Autumn Statement. It was also disclosed earlier this week that two-thirds of the UK housebuilding fund remains unspent despite an ongoing housing crisis, primarily due to a significant rise in costs and the challenges getting approvals. However, as we gear up for the election, housebuilding and home ownership will be a key issue.

“We expect that during the upcoming Budget, the Chancellor will throw as much of the kitchen sink he can at supporting the housing industry, whether that comes in the form of a reduction in stamp duty, specific support for first-time buyers, or something similar to the help to buy scheme. The government will also need to consider how to replace the mortgage guarantee scheme, which comes to an end in June 2025.

“This year will be one of the strongest years for affordable housing development. Many of the big players have moved into this segment because there is steadier cash flows and margins compared to other projects.  Refurbishments are also likely to pick up this year, whether that is updating offices or repurposing.  BTR will continue its upward trend.

“Overall, if the construction industry can get through Q1 with relatively few casualties, then the rest of the year should be far more positive than 2023.”

>>Read more construction data in the news

The post Construction Downturn Eases in December appeared first on Roofing Today.

Generated by Feedzy