The latest bellwether S&P Global/CIPS UK Construction Purchasing Managers’ Index dropped to 48.4 in January from 48.8 in December and was below the neutral 50.0 threshold for the second month running.
House building led the decline at 44.8 with the steepest rate of contraction in the sector since May 2020.
Commercial activity declined at 48.2 for the first time in five months while civil work was close to stabilisation at 49.7.
Looking ahead, around 43% of the survey panel anticipate a rise in business activity over the year ahead, while only 17% forecast a decline.
The resulting index signalled a sharp rebound in business expectations from the 31-month low seen in December 2022.
Construction companies often commented on improved sales pipelines and hopes of a turnaround in new orders.
“Some firms cited optimism that confidence would eventually return to the housing market over the course of 2023, assisted by a stabilisation in borrowing costs.”
Dr John Glen, Chief Economist at the Chartered Institute of Procurement & Supply, said: “The wrecking ball of higher inflation and interest rates has knocked the UK’s residential building output to its weakest since May 2020 as stretched mortgage affordability impacted on the building of new homes.
“The other sectors also saw stagnation, so, it’s a construction conundrum, that builder optimism has risen to the highest for six months with the sector facing the second consecutive month of order books looking increasingly empty.
“This hopeful aspect could potentially be attributed to more enquiries filtering through to building companies which could develop into concrete orders in the coming months alongside the economy showing small, incremental improvements. Delivery times and material availability also improved which was a boost for firms working on ongoing projects.
“The continuing price pressures for energy and wages still remain a concern, along with the highest level of job shedding for two years and building skills remaining in short supply.
“Evidently, there are still roadblocks ahead, but we should have faith that the sector can see a path through for better outcomes in 2023 after languishing in
contraction in the last few months.”