Construction sector starts the year on weak footing as housebuilding falls

Housing activity declined for the first time since August 2016 in January. This is a blow for the sector after new demand for housing, supported by Help to Buy schemes, had helped bring it out of recession in the final quarter of 2017.

Construction fell to 50.2 in January on IHS Markit Purchasing Managers' Index. This was down from 52.2 in December and a weaker performance than economists had predicted. Housebuilding fell below 50 on the scale, indicating a contraction.

This marks the first time in a year and half that housing was the weakest performer of the three construction areas covered by the survey, which also includes commercial and civil engineering activity.

The fall in home building will disappoint policy makers. It follows promises to address the housing crisis by dramatically increasing the number of new builds and comes amid warnings from the Royal Institute of Chartered Surveyors (RICS) that severe shortages of workers would mean the Government has little hope of meeting its target to build 300,000 properties per year.

Mark Robinson, SCAPE Chief Executive, said that the figures showed a sector under “considerable pressure”.

He added that pledges from Government to renew funding for 113 council-led projects should improve the picture in the coming months, however, and “jump-start” residential building in the regions.

A spokesman for the Home Builders Federation said there were “areas of uncertainty” that the industry needs Government to work on. These include the future of Help to Buy - a scheme that lends first-time buyers money for a deposit - and ensuring the planning process is fit for purpose. He also warned against “the threat of imposing arbitrary and unrealistic building rates on schemes” and noted a lack of skills in key areas.

Commercial and civil engineering scored above 50, improving on the picture in December and suggesting that the collapse of outsourcing giant Carillion last month is not to blame for the disappointing performance of construction in January.

Samuel Tombs of Pantheon Macroeconomics said that plans for future activity reflected builders’ hopes that political uncertainty will ease later this year once the next round of Brexit talks gets under way. Further clarity on the likely Brexit deal would lead firms to press ahead with investment decisions.

Mr Tombs said he believed activity is likely to fall further over the coming months, however, and noted that firms' order books had also contracted in January. He said he expected the sector to “remain in the doldrums throughout 2018”.