Builders suffer biggest slump since Covid in blow to Labour’s plans to deliver 1.5m new
Housebuilding suffered its sharpest slump since the pandemic last month in a major blow to Labour’s ambitions to deliver 1.5m new homes.
A survey showed housing activity in the construction sector was the weakest since May 2020 as experts warned tax hikes and red tape have ‘smashed sentiment’.
Excluding the pandemic, it has not been in worse shape since March 2009. The wider construction sector shrank for the 12th month in a row, its longest run of contraction since the 2008 financial crisis.
Much of the blame was placed on the timing of Rachel Reeves’ November Budget, the effect of which spilt over into December as delayed investment decisions hit sales.
Builders also face the same pressures piled on to employers across the economy, with rising taxes and the minimum wage and new workers’ rights.
Julian Jessop, economics fellow at the Institute of Economic Affairs, a think-tank, said: ‘This survey is a damning verdict on Labour’s policies. Labour has crushed the “animal spirits” that drive growth.’
Under pressure: Housing activity in the construction sector in December was the weakest since May 2020 as experts warned tax hikes and red tape have ‘smashed sentiment’
The monthly purchasing managers’ index (PMI) report, compiled by financial firm S&P Global, gave a reading of 40.1 for December – where 50 separates growth from contraction.
It was slightly higher than the five-and-a-half-year low of 39.4 in November as firms reported ‘relatively sharp’ cuts in staff.
Readings for housebuilding (33.5) and commercial construction (42), were each the lowest since the pandemic.
Civil engineering (32.9) was worse again and is likely to be deeply troubling for Labour as it hopes for an infrastructure building spree to revive the economy.
Tim Moore, economics director at S&P Global Market Intelligence, said: ‘Many firms cited subdued demand and fragile client confidence.
‘Despite a lifting of Budget-related uncertainty, delayed spending decisions were still cited as contributing to weak sales pipelines.’
Simon French, economist at broker Panmure Liberum, said: ‘Boy, oh boy, the sector is still in a hole.
The cavalry of planning reform has been promised many times before… and tax speculation/costly new regulations since the election have smashed sentiment.’
Labour is pinning its hopes on a revival in construction, with Housing Secretary Steve Reed pushing a ‘build, baby, build’ strategy. But it looks increasingly unlikely to meet that goal.
Elliott Jordan-Doak, UK economist at Pantheon Macroeconomics, said: ‘The Budget’s prioritisation of higher welfare spending rather than investment will come as a disappointment to many builders, and the boost to activity from falling interest rates will be modest.’
Matt Swannell, economic adviser to the EY ITEM Club, said: ‘This will be a year of mixed fortunes for the construction sector.
‘Economic and political uncertainty will see some projects either paused or cancelled.’
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