A sharp decline in house building has led to the fastest fall in construction output since May 2020, while business expectations rebounded to the highest confidence level in six months, according to the latest Construction PMI report from S&P Global Market Intelligence.
Economics Director Tim Moore said: “A sharp and accelerated decline in house building activity led to the weakest UK construction sector performance for just over two-and-a-half years in January. Construction companies once again cited a headwind from lacklustre market conditions, rising interest rates and fewer new project starts in the residential segment. Commercial building also slipped into contraction as the subdued UK economy weighed on business investment.
“However, there were positive signals for longer-term prospects across the construction sector, with business activity expectations staging a swift rebound from the low point seen last December. For some firms, the recovery in business optimism to its highest for six months was driven by signs of a turnaround in new sales enquires at the start of 2023. Other construction companies simply noted gradual improvements in the general economic outlook and hoped that confidence would return at a later stage this year to alleviate the current lack of momentum in the house building sector.”
Dr John Glen, Chief Economist at the Chartered Institute of Procurement & Supply, said: “The wrecking ball of higher inflation and interest rates has knocked the UK’s residential building output to its weakest since May 2020 as stretched mortgage affordability impacted on the building of new homes. The other sectors also saw stagnation, so, it’s a construction conundrum, that builder optimism has risen to the highest for six months with the sector facing the second consecutive month of order books looking increasingly empty.
“This hopeful aspect could potentially be attributed to more enquiries filtering through to building companies which could develop into concrete orders in the coming months alongside the economy showing small, incremental improvements. Delivery times and material availability also improved which was a boost for firms working on ongoing projects.
“The continuing price pressures for energy and wages still remain a concern, along with the highest level of job shedding for two years and building skills remaining in short supply. Evidently, there are still roadblocks ahead, but we should have faith that the sector can see a path through for better outcomes in 2023 after languishing in contraction in the last few months.”
