Construction PMI: Adverse weather dampens construction activity in December

According to the latest PMI data by S&P and CIPS, the headline construction PMI for December decreased to 53.3, down from 55.2 in November. The headline PMI in December also shows a reversal on the upward trend seen throughout the majority of 2024. 

The main contributors to the latest decrease were commercial and civil engineering activity, which fell to 55 and 52.9. Housing activity also fell slightly to 47.6, remaining below 50 for the third consecutive month. 

Kelly Boorman, National Head of Construction at RSM UK, said: “The headline construction PMI fell in December, despite a mainly positive year of activity with the industry managing to recover and rebuild margins. The latest fall was likely due to the spells of bad weather in the run up to Christmas, as well as the usual seasonal slowdown over the festive period, as reflected in the falls in commercial and civil engineering activity. Businesses are also starting to feel the impact of supply chain disruption after multiple significant company collapses in 2024, which has dampened market confidence and caused project delays, leaving many contracts in limbo. 

“The fluctuation in housing activity since the government introduced mandatory housing targets also indicates these targets are impracticable and undeliverable. The current planning system is not fit for purpose to deliver increased volumes, with workforce constraints adding further tension. There’s also the issue of changes to employment taxes announced in the Autumn Budget, with construction businesses starting to realise the impact of surging costs within tight operational margins.”  

She added: “However, despite recent setbacks, we expect an uptick in activity in Q1 2025, following the recent publication of the National Planning Policy Framework and the incoming infrastructure strategy which is due to be published in Spring 2025. While these policies will help to remove red tape and accelerate delivery, it’s essential that government acts now by addressing planning and labour shortages to ensure construction businesses have the practical support they need to build efficiently and deliver on volumes.” 

Thomas Pugh, Economist at RSM UK, said: “The weakness in the construction PMI in December is yet another indicator suggesting that the economy stagnated at the end of last year. We are expecting total economic growth of just 0.1% in Q4. 

“Another concerning sign was that the input costs balance remained high at 57.2, reflecting high staff costs and the fastest rise in rates charged by subcontractors for 20 months. This combination of weak output measures and rising costs reflects the same trend as seen in other sectors and is particularly tricky for the Bank of England which has to trade off high inflation and weak economic growth.

“However, the future activity index rose to 66.7 and there are good reasons to expect construction output to rise through 2025. Falling interest rates and a recovering housing market should encourage housing construction, which was especially weak in Q4. Indeed, a focus from government on housing construction should help, even if the targets look undeliverable. 

“What’s more, while the focus is currently on the costs imposed by the Autumn Budget, as increased government spending and investment begins to flow, much of it on infrastructure investment, this should help to boost demand. 

“Overall, the subdued message from the construction PMI in Q4 reflects the same trends we are seeing in the broader economy, but there are good reasons to expect 2025 to be a stronger year, both in the construction industry and the wider economy.”