(Bloomberg) -- UK housebuilding dropped at the fastest pace in six months, as high interest rates and fragile consumer confidence threatened to hamper the Labour government’s pledge to boost construction.
S&P Global’s headline construction purchasing managers’ index tumbled to 53.3 in December, down from 55.2 the previous month. The fall was larger than the drop to 54.4 expected by economists, though the indicator remained above the 50 threshold signaling growth.
The sector was dragged down by a third straight fall in the housebuilding subindex, a deterioration that will concern Prime Minister Keir Starmer who promised to build 1.5 million homes over five years.
The vow has got off to a slow start after private housebuilders cut back projects in response to weaker demand and high interest rates. Starmer is hoping that reforms to planning rules will lead to more building and ease a housing crisis that has kept many young voters from getting a foot on the property ladder.
Separate figures from mortgage lender Halifax showed house prices fell for the first time in nine months in December. However, the 0.2% decline from a record high in November will bring little relief to millions of Britons struggling to get on the property ladder.
At almost £300,000 ($376,130), the average house price is more than six times the average full-time wage after a near-doubling in home values over the past 20 years. They rose by 3.3% in 2024 alone, the most since the pandemic, according to Halifax.
Housebuilders could increase construction again if the property market’s recovery picks up steam in 2025 as interest rates edge down.
Tim Moore, economics director at S&P Global Market Intelligence, said that December’s data pointed to a “loss of momentum” in the sector with firms reporting “headwinds from elevated borrowing costs and the impact of fragile consumer confidence.”
“Concerns about the demand outlook weighed on construction sector growth expectations for 2025,” he said.
The data also revealed lingering wage pressures in the building sector, with prices charged by sub-contractors increasing at the fastest rate since April 2023.
While the closely watched business survey showed commercial building and civil engineering remaining in growth territory, both suffered a slowdown. Overall new orders growth was the weakest since June and firms cut back on buying materials for the first time in eight months.
There were signs of confidence recovering after a drop in the wake of Labour’s October budget. Almost half of firms predicted a rise in their output this year, compared with 15% expecting a decline — an improvement on November.
(Adds Halifax house price data)
©2025 Bloomberg L.P.