December slowdown should not surprise

7 January 2023

The UK construction industry recorded a fall in business activity during December, ending a three-month sequence of growth, with the rate of decline the fastest since May 2020.

This is the headline finding in the UK Construction Purchasing Managers’ Index survey findings for December, compiled by S&P Global for the Chartered Institute of Procurement & Supply.

A similar trend was observed for new orders, which saw a renewed fall that was the strongest for over two-and-a-half years. Concurrently, sentiment amongst firms towards the year-ahead outlook for activity dipped into negative territory for only the sixth time on record, reflecting fears around the near-term economic outlook. However, the degree of pessimism is described as marginal. 

At 48.8 in December, down from 50.4 the previous month, the index registered below the 50.0 mark to signal the first contraction in construction sector output since last August.

Housing activity declined for the first time since last July and only marginally (48.0), while civil engineering, responsible for larger projects, recorded a sixth consecutive monthly contraction in output (46.8).

While disappointing, these figures can perhaps be mitigated by several factors. For one thing, many contractors (and hire companies) shut down for an earlier and longer Christmas break than usual. Strike activity in the rail industry and other sectors also impacted work patterns.

In addition, many work sites had to cope with surprisingly cold temperatures. The Met Office reported that the first two weeks of December were the coldest start to meteorological winter since 2010, making it the only month in 2022 which saw below-average temperatures. 

A weather station at Braemar, Aberdeenshire, recorded the lowest daily maximum temperature of the year, with minus 9.3°C being the highest it reached on 12 December. In the early hours of the following morning, the same site recorded the lowest minimum temperature of the year with minus 17.3°C. 

So while the backdrop is challenging, the December downturn should perhaps be viewed in the context of such other data. Indeed, as I forecast at the start of the year, we might expect such seasonal variations. 

Photo: Brett Jordan