UK construction activity last month fell at the fastest pace since May 2020, as housebuilding plummeted due to weak demand amid low consumer confidence and poor economic growth, according to a closely watched survey.
The S&P Global UK Construction Purchasing Managers’ index, which tracks growth in the sector, fell to 44.6 in February, down from 48.1 in January and its lowest for nearly five years.
The figure released on Thursday was also below the neutral 50.0 threshold, indicating a majority of businesses reporting a contraction and worse than the 49.5 forecast by economists polled by Reuters.
Residential building decreased for the fifth month in a row and was the weakest-performing area of construction activity in February, with an index well below the 50 mark at 39.3, according to the survey.
Aside from the coronavirus pandemic, the rate of decline for housebuilding was the fastest since early 2009, with survey respondents often citing weak demand conditions, difficulties from elevated borrowing costs and a lack of new work to replace completed projects.
Tim Moore, economics director at S&P Global Market Intelligence, said: “Sharply declining order books rippled through the UK construction sector in February, which led to accelerated reductions in output volumes, employment and input buying.”
“Weak demand conditions were attributed to entrenched caution among clients, against a backdrop of subdued consumer confidence and lacklustre economic performance,” he added.
The economy stagnated in the three months to September and rose only marginally by 0.1 per cent in the final three months of 2024. Consumer and business sentiment took a hit from the £40bn tax increases in October’s Budget.
The figures highlight the government’s challenge of meeting its target to boost construction to reduce housing costs and support economic growth. It comes as separate data showed England’s granted planning permissions reached a 10-year low in 2024.
The S&P construction survey also showed that rising payroll costs and input prices increased business expenses, which climbed to the steepest level since March 2023.
A separate survey of chief financial officers published on Thursday by the Bank of England underlined rising prising pressures.
The survey across all sectors showed that last month businesses expected their price growth for the year ahead at 4 per cent, higher than the 3.5 per cent expansion reported for the past year.
“Disinflation is over according to the Decision Maker Panel, as firms pass payroll tax hikes and President Trump’s tariff threats through to prices,” said Rob Wood, economist at the consultancy Pantheon Macroeconomics.
From April, businesses face a rise in the national living wage and in the employer’s national insurance contribution.
Expected wage growth for the year ahead ticked up to 4 per cent in February, from 3.9 per cent the previous month, and was broadly unchanged since June 2024 when it stopped falling, according to the BoE survey.
“We think those stubborn wage expectations support the more hawkish of the Monetary Policy Committee’s three inflation scenarios, in which structural changes in the labour market keep inflation pressures persistent,” said Wood.
