The Construction Sector Remains in the Doldrums - Latest Data Indicates Another Month of Decline in April
UK construction sector experiences decline in April, with a rocky journey persisting
The construction sector in the UK is still battling tumultuous waters, according to a new study. The sector has experienced four consecutive months of output decrease, a worrying signal that a recovery may still be nowhere in sight.
The recent purchasing managers' index (PMI) from S&P Global reveals the grim state of the sector. Civil engineering was identified as the weakest segment, with little sign of new projects picking up steam. Consequently, the current reduction in total new work translates to the second-fastest decline for five years.
The commercial construction sector also took a hit, with businesses reluctant to make hasty investment decisions. The reduction in output in this sector is at its lowest in nearly five years.
Tim Moore, economics director at S&P Global, commented, "Construction businesses have been on a bumpy ride because of the floundering economy and clients' hesitance." However, Moore noted a silver lining—an optimistic outlook for the year ahead. Firms anticipate a rebound in residential building projects, giving hope for a turnabout in output.
Crippling costs are another challenge the sector is grappling with. Material prices continue to ascend along with higher taxes, putting a strain on budgets. Concrete, timber, and other materials have seen increases in price. Additionally, businesses face higher employment costs following Chancellor Reeves' increases to national insurance contributions.
Amid these struggles, construction company insolvencies are on the rise. City AM reported that 840 businesses appointed liquidators or administrators during the first four months of this year, hitting an all-time high on record. Nearly 20% of all insolvencies came from the construction sector, spelling trouble for housing minister Angela Rayner's aim to construct 1.5 million homes by 2030.
The government set housebuilding as a key policy to alleviate the challenges faced by first-time buyers. However, a new estimate by the Office for Budget Responsibility (OBR) suggests the government might fall short of its target, predicting only 1 million homes will be built in England. The number of housing projects granted permission in England hit a record low in 2024, according to the Ministry of Housing.
A glimmer of hope comes from S&P Global's PMI, which suggests potential optimism ahead. Nearly half of the firms surveyed projected an increase in output in the next year, marking the highest level of business confidence since December last year.
- The rising number of construction company insolvencies in 2022, with nearly 20% originating from the construction sector, could potentially hinder housing minister Angela Rayner's goal of constructing 1.5 million homes by 2030.
- The decrease in output in the commercial construction sector is at its lowest in nearly five years, suggesting reluctance of businesses to make investment decisions.
- Material costs continue to escalate, largely due to increases in taxes, leading to a strain on budgets for construction companies.
- The government's housebuilding policy, aimed at alleviating challenges faced by first-time buyers, may fall short of its target, as per a new estimate by the Office for Budget Responsibility (OBR), predicting only 1 million homes will be built in England.
- Despite the ongoing struggles, the construction sector's prospect of recovery appears somewhat optimistic, with almost half of the firms surveyed by S&P Global projecting an increase in output in the next year.
