The latest monthly survey of construction industry purchasing managers generated a reading of 46.8 in December 2003, below the 50,0 no-change mark once again, but better than the 45.5, 45.6 and 45.0 scores of the three previous months.
All three sectors of the industry – house-building, civil engineering and commercial construction – slowed in December, with readings of 4.1, 47.0 and 47.6 respectively.
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 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 another fall in purchasing activity, albeit the slowest fall for four months. 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. Average cost burdens across the construction sector decreased for the third month running in December, although only modestly.
Despite current conditions, there remains some optimism, with 41% of the survey panel expecting an increase in business activity over the course of 2024 and only 17% predicting a decline. Reduced interest rates and a turnaround in market confidence were factors cited as likely to boost construction activity.
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.”
Fraser Johns, finance director at building contractor Beard, said: “In what has become a consistent theme for the industry, weak performance in the house building sector continues to hold back construction output and weigh heavily on overall new work.
“A key driver has been elevated borrowing costs and general uncertainty in the economy, which is also being felt in the commercial space – contributing to a modest decline in the sector. It may be the case that clients don’t quite have the confidence just yet to commit to large-scale construction projects. Saying that, our view on the ground in the south remains positive with high demand – particularly from frameworks, and growing interest on the south coast as we prepare to open our latest regional office.
“There’s no question that resilience is key at the moment and the ability for firms to hold their nerve. While 2024 will undoubtedly present its fair share of challenges, we are beginning to see some positive indicators for the year ahead and expectations of falling interest rates. However, this does depend on the appetite of the Bank of England and the economy avoiding any substantial shocks. There’s an element of controlling what we can control right now and nurturing those close relationships with clients as confidence begins to return.”
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