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Britain’s construction industry suffers biggest slide in activity in more than three years in September 2023
Britain’s construction industry saw the biggest slide in activity in more than three years in September 2023, according to a survey by S&P Global/CIPS. The Purchasing Managers’ Index (PMI) for the sector fell to 45.0 in September from 50.8 in August, its lowest since May 2020, when COVID-19 pandemic restrictions were in full force. A reading below 50 indicates contraction.
The survey showed that house-building was particularly hard hit, with the house-building index dropping to 38.1 from 40.7 – its lowest since April 2009, apart from two months in 2020. This was the sharpest fall in house-building activity since the 2008-09 recession.
The construction industry has been under pressure for some time, with rising costs of materials and labour, as well as supply chain disruptions, all having an impact. However, the latest PMI reading suggests that the sector is now facing a more serious downturn.
Factors contributing to the decline
There are a number of factors that have contributed to the decline in construction activity in recent months.
- Rising interest rates: The Bank of England has raised interest rates several times in recent months in an effort to combat inflation. This has made it more expensive for businesses and individuals to borrow money, which is having a knock-on effect on investment in the construction sector.
- Cost of living crisis: The cost of living crisis is also having a negative impact on the construction industry. As household incomes are squeezed, people are spending less on discretionary items, such as new homes and renovations.
- Supply chain disruptions: The construction industry has been hit hard by supply chain disruptions caused by the COVID-19 pandemic and the war in Ukraine. This has made it difficult for businesses to get the materials they need, and has pushed up costs.
- Labour shortages: The construction industry is also facing a shortage of skilled workers. This is due to a number of factors, including an ageing workforce, Brexit, and the COVID-19 pandemic.
Impact of the decline
The decline in construction activity is having a number of negative consequences.
- Job losses: The construction industry is a major employer in the UK, and the decline in activity is leading to job losses. In September 2023, the construction sector saw the biggest fall in employment since May 2020.
- Slower economic growth: The construction industry is a major contributor to the UK economy, and the decline in activity is having a negative impact on economic growth. The Office for National Statistics estimates that the construction sector contributed 0.6% to UK GDP growth in the second quarter of 2023, down from 1.0% in the first quarter of 2023.
- Higher costs for consumers: The decline in construction activity is also leading to higher costs for consumers. As businesses struggle to recruit workers and get the materials they need, they are passing on higher costs to their customers. This is pushing up the cost of new homes and renovations.
Outlook for the future
The outlook for the construction industry in the short term is bleak. The sector is expected to continue to contract in the coming months, and job losses are likely to continue. However, there are some signs that the sector may start to recover in the medium to long term.
The government is investing heavily in infrastructure projects, such as HS2 and new roads and railways. This is likely to boost demand for construction services in the coming years. In addition, the government is also taking steps to address the skills shortage in the construction industry. This is likely to improve the long-term prospects for the sector.
Conclusion
The decline in construction activity in the UK is a major concern. The sector is a major employer and contributor to the economy. The decline is having a number of negative consequences, including job losses, slower economic growth, and higher costs for consumers.
The outlook for the sector in the short term is bleak, but there are some signs that it may start to recover in the medium to long term. The government’s investment in infrastructure projects and its efforts to address the skills shortage in the sector are likely to boost demand for construction services in the coming years.
Additional information and analysis
Impact on different regions and sectors
The decline in construction activity is having a different impact on different regions and sectors within the industry. For example, house-building is being hit particularly hard, while infrastructure projects are more resilient. In terms of regions, London and the South East are being hit hardest, while the North East and Yorkshire are more resilient.
House-building
House-building is the sector that is being hit hardest by the decline in construction activity. This is due to a number of factors, including the rising cost of living, the decline in consumer confidence, and the rising cost of borrowing. In September 2023, the house-building index fell to 38.1, its lowest level since April 2009. This was the sharpest fall in house-building activity since the 2008-09 recession.
Infrastructure
Infrastructure projects are more resilient to the decline in construction activity. This is because they are typically funded by the government and are less sensitive to economic conditions. In addition, infrastructure projects are often long-term projects, which means that they are less likely to be affected by short-term fluctuations in the economy.
Regions
London and the South East are the regions that are being hit hardest by the decline in construction activity. This is because these regions have a higher concentration of house-building activity. In addition, the cost of living is higher in these regions, which is having a negative impact on consumer confidence and spending.
The North East and Yorkshire are the regions that are more resilient to the decline in construction activity. This is because these regions have a higher concentration of infrastructure projects. In addition, the cost of living is lower in these regions, which is supporting consumer confidence and spending.
Conclusion
The decline in construction activity is a major concern for the UK economy. The sector is a major employer and contributor to GDP. The decline is having a number of negative consequences, including job losses, slower economic growth, and higher costs for consumers.
The outlook for the sector in the short term is bleak, but there are some signs that it may start to recover in the medium to long term. The government’s investment in infrastructure projects and its efforts to address the skills shortage in the sector are likely to boost demand for construction services in the coming years.
Further analysis
The decline in construction activity is a complex issue with a number of contributing factors. In addition to the factors mentioned above, other factors that are likely to be playing a role include:
- The war in Ukraine: The war in Ukraine has caused significant disruption to the global economy, and the construction sector has not been immune. The war has led to higher energy prices and disruptions to supply chains, which has pushed up the cost of construction materials and made it more difficult for businesses to get the materials they need.
- The COVID-19 pandemic: The COVID-19 pandemic also had a significant impact on the construction industry. The pandemic led to disruptions to construction sites and made it difficult for businesses to recruit workers. The pandemic also led to a decline in demand for construction services, as businesses delayed or cancelled projects.
The impact of the decline in construction activity is likely to be felt for some time. The sector is a major employer, and job losses in the construction sector are likely to have a knock-on effect on other sectors of the economy. In addition, the decline in construction activity is likely to lead to higher costs for consumers, as businesses pass on the higher costs of materials and labor to their customers.
What can be done?
The government has a number of policy options that it could use to address the decline in construction activity. These options include:
- Investing in infrastructure: The government could invest more in infrastructure projects. This would boost demand for construction services and create jobs in the sector.
- Addressing the skills shortage: The government could take steps to address the skills shortage in the construction industry. This could include providing funding for training and apprenticeships, and making it easier for skilled workers from overseas to come to the UK.
- Providing support to businesses: The government could provide support to businesses in the construction sector. This could include providing financial assistance to help businesses with the cost of materials and labor, and providing tax breaks to encourage investment in the sector.
The government has already taken some steps to address the decline in construction activity. For example, the government has announced a £30 billion investment in infrastructure projects. However, more needs to be done to support the sector. The government should consider the policy options mentioned above, and work with the construction industry to develop a plan to address the challenges that the sector is facing.
5 August 2022 – The UK construction industry has declined for the first time in 18 months, according to latest S&P Global/CIPS construction purchasing managers’ index (PMI) survey.
The UK has suffered first decline since January 2021 and the worst reading overall since May 2020, near the start of the pandemic. Housebuilding fell for the second consecutive month, and civil engineering firms reported their worst result for almost two years. Commercial construction work grew, but more slowly than during the previous month.
UK construction industry recruitment grew at an accelerated level in July but there were still difficulties with filling vacancies and strong wage pressures.
Access to construction raw materials has improved, but prices are at historically high levels.
29th April 2022 – The Building Safety Bill
The Building Safety Bill was granted royal assent into new law in UK. The bill details how leaseholders caught up in the crisis will be protected from paying for repairs to the buildings where they live. Property developers are to pay up to £5bn to cover the costs of remediating cladding in buildings between 11 metres and 18 metres in height as well as a building safety pledge to force developers to carry out works.
While the UK government’s £5.1bn Building Safety Fund will cover the costs of fixing dangerous cladding in buildings above 18 metres in height, leaseholders could still face bills for non-cladding fire defects. The bill caps these costs at £10,000 per leaseholder – £15,000 in London – for “all but the most expensive properties”.
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