Construction marks full year of decline in blow to Labour
The construction sector has now marked one full year of a decline in output, according to a leading survey, blowing a hole in Labour’s ambitious housebuilding targets.
S&P Global’s monthly survey showed the sector had fallen under a threshold for neutrality in output for the twelfth successive month.
The reading for December was also the second-lowest since May 2020, researchers said.
Housing and commercial construction also suffered the fastest reduction in activity since May 2020 in S&P Global’s purchasing managers’ index (PMI).
Construction has been damaged by low business confidence and higher costs, including in rising taxes and prices of raw materials over the last year.
The rapid decline of the sector underlines the Labour government’s struggles to “build, baby, build” as it faces a race against time to meet its 1.5 new homes target.
Housing secretary Steve Reed is likely to face renewed scrutiny of the effectiveness of the government’s planning reforms as they come into place this year.
Government to ‘undershoot target’ due to construction woes
S&P Global analysts also said weeks of speculation over property taxes in the lead-up to the Budget dampened activity across engineering, house building and commercial construction.
“Despite a lifting of Budget-related uncertainty, delayed spending decisions were still cited as contributing to weak sales pipelines at the close of the year,” Tim Moore, economics director at S&P Global, said.
The latest set of data also revealed job shedding continued in December, albeit at a more “moderate” pace, and a lack of new orders to replace completed projects.
There was also a slight recovery in business optimism, with 37 per cent of firms expecting a rise in output levels over the upcoming year. However, one in five (20 per cent) expected output to decline.
The optimism comes largely as a result of greater investment in utilities such as water and energy infrastructure.
“The weakness in the housing balance is consistent with the low supply of new homes in 2025,” Amy Wood, Capital Economics real estate economist, said.
“New housing starts are likely to rise this year, though they will remain low by past standards and undershoot the government’s homebuilding target.”
Pantheon Macroeconomics analysts said the continued contractions across the construction sector would weigh down on its growth forecasts for 2026 though activity could “outperform the signal from the PMI”.