UK construction in biggest downturn in nearly five years
Britain’s construction sector has suffered its biggest downturn since May 2020, according to a closely-watched survey.
There were steep declines in housebuilding and civil engineering activity during February, according to the latest purchasing managers’ index from S&P Global. At the same time, input cost inflation accelerated to the highest level in two years.
The headline index fell to 44.6 in February from 48.1 in January, further below the 50 mark that separates expansion from contraction. New work also fell at the fastest rate in almost five years.
Housebuilding, with the index at 39.3, pointing to a steep decline, fell for the fifth month in a row and was the weakest-performing area within construction.
Aside from the pandemic, the rate of decline was the fastest since early 2009. Firms cited weak demand conditions, elevated borrowing costs and a lack of new work to replace completed projects.
Civil engineering activity was similarly bad with the index at 39.5, while commercial construction displayed a degree of resilience with the index at 49, just below the 50 mark, with output levels falling only marginally and at a similar pace to that seen in the previous survey period.
Key events
Spire Healthcare shares slump on cautious outlook, hit by NICs
Spire Healthcare, the UK’s biggest private hospital provider, has reported lower-than-expected annual profits and was cautious about the outlook this year because of mounting cost pressures, sparking a sharp drop in its share price.
The company made a pretax profit of £38.3m last year, up 10.7% on 2023, with revenues rising to £1.5bn, up by 6.2% on a like-for-like basis. Its hospitals and clinics carried out more work for the NHS, up 8.8% year on year, against a backdrop of long NHS waiting lists.
The company, which also runs private GP practices, is battling higher wage and energy bills, which are estimated to reduce underlying earnings by £30m in 2025. It calculates up to £20m of extra costs from increases in the national minimum wage and national insurance contributions for employers, starting in April.
The FTSE 250-listed shares slumped 22% in early trading and are now down by around 16%.
At the same time, Spire is pushing through a cost saving programme of at least £30m this year, through a digitisation drive, such as automating bookings. It has already automated all of its procurement, and is moving administration out of hospitals into regional hubs.
Spire opened three new primary care clinics in Harrogate, Abergele in north Wales and Norwich, and intends to open five more around the country this year as it builds up its private healthcare network, including physio and mental health services via talking therapies.
There is a shift from people paying for private care out of their own pockets, faced with long NHS waiting lists, to more treatments being covered by private insurance, as more small and medium-sized firms are providing insurance to their staff.
People are now staying less than two days in hospital, on average, following hip and knee replacements, and Spire wants to get this down to 23 hours. Patients need to stay less long if they get fit and lose weight, where necessary, before the operation and are also given fluids and proteins to help them recover faster.
Justin Ash, the chief executive, said:
Insurance is growing because employers are working out a) they need to retain employees, b) that their biggest challenge is people who are on long term sick [leave] and as a country generally, our biggest growth challenge is the 2.8 million economically unproductive people.
Here’s our full story on Poundland being put up for sale:
AJ Bell investment director Russ Mould said:
The FTSE 100 slumped on Thursday despite mining stocks enjoying strong gains on hopes of a reprieve on tariffs and expectations China will launch a big stimulus package.
The UK’s flagship index was dragged lower as several big names traded without the right to their next dividend and some corporate results disappointed.
News that Donald Trump is temporarily sparing carmakers from US tariffs on Canada and Mexico helped reinforce hopes there may be some flexibility in the new administration’s trade policy.
Later today the European Central Bank is expected to cut rates having been given a freer hand as inflationary pressures have eased.
At lunchtime, we are expecting the European Central Bank to cut interest rates by a quarter point.
Mahony said:
Today sees the ECB step forward, with markets largely counting a rate cut as a foregone conclusion. Instead, the question is more about the size of that easing, with some calling for an oversized 50bp cut.
Meanwhile, traders will increasingly start to concern themselves with trying to understand where this all ends, with the rapid decline in eurozone rates meaning that we may not be far off the so-called ‘neutral rate’.
The prospect of reciprocal tariffs being imposed by the US next month does raise growth concerns going forward, with the ECB having to help where possible. The fiscal boost looks to be coming in the form of a huge pledge to ramp up defence spending in the years to come, but that borrowing won’t come cheap given the sharp surge in borrowing costs seen in response to that announcement.
With that in mind, the likes of Lagarde will be well aware of their role in bringing borrowing costs down. With inflation likely to fall below 2% in the coming months, it does look like the bank stands in a good position to continue easing over the coming meetings.
Joshua Mahony, an analyst at Scope Markets, has looked at today’s moves.
The Dax continues to lead the way in Europe, continuing its impressive run higher as increased fiscal spending lifts growth prospects. With the German coalition taking shape, the prospect of a ramp-up in government spending does stand in stark contrast to the US where huge DOGE cost-cutting efforts provide the basis for economic weakness while they wait for the private sector growth to make up the shortfall. Ukrainian efforts to bridge the gap with the US in a bid to find a peace agreement appears to have done little to help strengthen their negotiating position as Trump pulls all military aid and knowledge sharing with Ukraine, arguably weakening the case for peace as Russia push for further expansion.
However, investors are clearly voting with their capital, as the prospect of European growth gains traction while US recession fears emerge. From a fiscal perspective, the prospect of a sharp increase in European debt as the US seeks to drive down their liabilities does highlight a strong possibility of euro-dollar strength driven by rising relative bond yields in Europe.
He has also looked at the mainland Chinese and Hong Kong markets.
Chinese markets continue the diversification theme for equity markets, with the Hang Seng pushing 3.3% higher overnight. The pledge to ramp up stimulus, increase the deficit to 4%, and maintain the growth target at 5% has lifted sentiment over the direction of travel for China despite the ongoing trade war with the US.
Meanwhile, the flow of capital into Chinese Ai names continues, with the announcement of Alibaba’s ChatGPT beating Gwen model helping to drive a 8% pop in the share price. With Alibaba up 42% over the past month, the 8% decline for Nvidia over that period highlights where the action is for tech traders right now.
FTSE slides 1%, pound and euro give up gains
Amid the gloomy outlook in UK construction and recruitment, the FTSE 100 index is sliding, down by 1% or 87 points to 8,667 and the pound has given up its gains.
The French market has lost 0.3% while the main German and Italian exchanges are still holding on to gains of about 0.2%.
Sterling has edged 0.1% lower to $12875, after rising above $1.29 in early London trading. The euro is more or less flat against the dollar now. Both currencies had hit fresh four-month highs earlier.
There is a special European council meeting today to discuss defence spending, to which Ukrainian president Volodymr Zelenskyy has been invited.
As for the recruiters, Toby Fowlston, the Robert Walters chief executive, talked about low confidence among clients and candidates globally this morning.
Speaking on BBC radio 4’s Today programme, said there were some “pockets of growth” in Asia Pacific, but they were “limited”.
It’s really come down to just a lack of client confidence. We’ve seen increasing costs, we’ve seen interest rate challenges. So that’s the general theme across across the group in 2024.
In the UK, the firm has seen hiring in finance, supply chain and procurement, while the retail sector is tough, he said.
He flagged two key global issues going forward.
We are seeing talent and skill shortages globally. Now that’s only going to be exacerbated. We’re seeing the funnel at the top being lightened with graduate intakes. So that is going to present a problem over the course of the next one to two years in areas like finance, legal, because the flow of graduate recruitment coming through is going to be limited.
The other area is is obviously technology and obviously there are benefits with AI, clearly. But here was a an article by Anthropic, who are an AI startup themselves, and their quote was, they don’t want to see applicants using AI because they want to gauge applicants personal interests, sincerely and without mediation. And this is where we play our role.
Eurozone sees biggest slump in construction in three months
The eurozone saw the biggest slump in construction in three months in February, according to a separate survey.
There was a marked reduction in new orders while cost pressures eased, according to a monthly report from Hamburg Commercial Bank.
The headline index fell from 45.4 in January to 42.7 in February, indicating a sharper downturn.
The fastest decline was recorded in France, where the downturn gathered pace, also in Germany, while Italian companies experienced their first fall in activity levels since last November.
Housebuilding remained the worst performer in February, while civil engineering activity fell at the fastest pace in eight months, and commercial construction was also down sharply.
Tariq Kamal Chaudhry, economist at Hamburg Commercial Bank, said:
Unpleasant signals come from the Eurozone construction sector as the HCOB eurozone construction PMI in February shows deepening weakness that does not seem likely to fade soon. The recession now encompasses all three major Eurozone economies: Germany, France, and Italy.
Although the ECB, particularly executive board member Isabel Schnabel, has signalled a pause in the rate-cutting phase to await further dynamics, the construction sector makes it clear that a delay in rate cuts in interest-sensitive areas can be fatal.
Weak demand now appears to be slowly affecting price developments, although input prices are rising slightly. Notably, subcontractor prices are rising again, despite a sharp decline in their usage.
The outlook remains deeply pessimistic. Order intake is falling sharply, and business prospects for the next twelve months, despite a significant increase from the previous month, remain in contraction. Employment is shrinking correspondingly.
In France, the construction sector is suffering from a sharp decline in new construction activity, leading to a drop in employment. In Germany and Italy, construction employment figures are also declining, driven by rising construction costs and a weakening construction economy.
Construction companies noted delayed decision-making among clients, reflecting squeezed budgets and concerns about the economic outlook, according to the S&P Global monthly survey. Some firms also noted the impact of cutbacks to business investment spending plans.
They laid off more people – the pace of job shedding was the sharpest recorded since November 2020. Typically, people who leave voluntarily are not being replaced, in response to cost constraints and fewer new project starts. This also led to the steepest fall in subcontractor usage since May 2020.
Tim Moore, economics director at S&P Global Market Intelligence, said:
Sharply declining order books rippled through the UK construction sector in February, which led to accelerated reductions in output volumes, employment and input buying. Weak demand conditions were attributed to entrenched caution among clients, against a backdrop of subdued consumer confidence and lacklustre economic performance.
Construction companies remain optimistic overall about their growth prospects for the next 12 months, albeit less so than on average in 2024 amid increasing concerns about the broader UK economic outlook. There were also signs that rising payroll costs and purchasing prices have become a source of anxiety, with the latest increase in overall business expenses the steepest since March 2023.
UK construction in biggest downturn in nearly five years
Britain’s construction sector has suffered its biggest downturn since May 2020, according to a closely-watched survey.
There were steep declines in housebuilding and civil engineering activity during February, according to the latest purchasing managers’ index from S&P Global. At the same time, input cost inflation accelerated to the highest level in two years.
The headline index fell to 44.6 in February from 48.1 in January, further below the 50 mark that separates expansion from contraction. New work also fell at the fastest rate in almost five years.
Housebuilding, with the index at 39.3, pointing to a steep decline, fell for the fifth month in a row and was the weakest-performing area within construction.
Aside from the pandemic, the rate of decline was the fastest since early 2009. Firms cited weak demand conditions, elevated borrowing costs and a lack of new work to replace completed projects.
Civil engineering activity was similarly bad with the index at 39.5, while commercial construction displayed a degree of resilience with the index at 49, just below the 50 mark, with output levels falling only marginally and at a similar pace to that seen in the previous survey period.
Recruiters Robert Walters, Page Group flag tough business conditions
UK recruiters Robert Walters and Page Group have highlighted tough business conditions.
PageGroup warned of heightened economic and geopolitical uncertainty across its key markets of the UK, France and Germany, as annual profits dropped by 58%.
Economic and political upheaval have weighed on confidence among businesses and led to a slowdown in both permanent and temporary hiring.
As PageGroup reported a lower-than-expected profit before tax of £49.1m, its chief executive Nicholas Kirk explained:
Market conditions remained challenging across all regions in 2024, with worsening sentiment and reduced confidence in Europe during the second half of the year.
Robert Walters reported a 14% slide in net fee income to £321.4m last year. It said confidence among clients and jobseekers were “subdued” throughout the year, impacting both specialist recruitment and volume hiring.
The company’s annual profit slumped to £500,000 from £20.8m the year before. The company has been investing in technology.
Toby Fowlston, the Robert Walters chief executive, said:
2024 was another challenging year for global hiring markets. Several factors acted to dampen client and candidate confidence levels, therefore slowing the pace of job moves and impacting our financial performance.
He said “it remains uncertain as to when a sustained improvement in hiring markets will commence”.
The company also flagged the upcoming rise in national insurance contributions for UK employers as an additional cost burden. It will kick in at the same time as the national minimum wage goes up.
Robert Walters said:
Employer caution remains high ahead of forthcoming national insurance contributions increase.
ITV production arm reports record earnings after Mr Bates vs the Post Office
In corporate news, ITV’s profits jumped in 2024 thanks to record earnings at the British broadcaster’s production arm, ITV Studios, as it benefited from hits including Mr Bates vs the Post Office, the Jilly Cooper adaptation Rivals and Fool Me Once.
The FTSE 250 company said revenues were down 3% to £4.1bn in 2024 compared with the previous year, but its measure of adjusted profits was up 11% at £542m. Profit before tax more than doubled to £521m, up from £193m a year earlier.
ITV has been seeking to make itself less reliant on the volatile earnings from its UK broadcast TV channels, with investors expecting linear television to wither as the shift to online streaming services such as Netflix, Amazon Prime and Disney+ progresses.
Beijing has also adopted a defiant attitude in the face of new US tariffs.
China’s ministry of foreign affairs has promised that China will “fight to the end” with the US in a “tariff war, trade war or any other war”, marking China’s strongest rhetoric on US president Donald Trump since he entered the White House.
On Tuesday, in response to Trump imposing an extra 10% tariff on Chinese goods, taking the cumulative duty to 20%, China’s foreign ministry spokesperson Lin Jian said: “Exerting extreme pressure on China is the wrong target and the wrong calculation … If the US has other intentions and insists on a tariff war, trade war or any other war, China will fight to the end. We advise the US to put away its bullying face and return to the right track of dialogue and cooperation as soon as possible.”
The comments about “any other war” were shared on X by the spokesperson for ministry of foreign affairs. The post was then re-posted by the Chinese embassy in the United States. The embassy reiterated the message, writing: “If war is what the US wants, be it a tariff war, a trade war or any other type of war, we’re ready to fight till the end.”
Bank of England governor Andrew Bailey warned yesterday that a full-blown trade war would pose a “substantial” threat to the British economy, after Donald Trump imposed 25% tariffs on Canada and Mexico, and a further 10% levy on China.
Bailey said any imbalances, such as China’s big current account surplus, should be addressed in “multilateral forums” rather than bilaterally.
Ultimately, the biggest impact of a trade war could be on productivity, a measure of economic efficiency, according to Bank rate-setters. For example, increases in productivity through the introduction of new technologies allow the economy to expand without boosting inflation.
A breakdown in transatlantic “information sharing” could have a major impact on productivity growth, Huw Pill, chief economist at the Bank of England, told MPs on the Treasury select committee.
“The relationship is broken” is how Canadians responded to Trump’s tariffs.
“Since Trump began his tariff threats against Canada and his ‘jokes’ about making Canada the 51st US state, I have not bought a single product originating in the US,” said Lynne Allardice, 78, a retired business owner from New Brunswick, Canada.
“Not a single lettuce leaf or piece of fruit. I have become an avid reader of labels and have adopted an ‘anywhere but the US’ policy when shopping. I will not visit the States while Trump remains in office, and most of the people I know have adopted the same policy.”
Acquaintances, Allardice added, were selling US holiday properties they had owned for many years.
The Jack Daniel’s maker Brown-Forman’s CEO Lawson Whiting said yesterday that Canadian provinces taking US liquor off store shelves was “worse than a tariff” and a “disproportionate response” to levies imposed by the Trump administration.
Several Canadian provinces have taken US liquor off store shelves as part of retaliatory measures against Donald Trump’s tariffs.
“I mean, that’s worse than a tariff, because it’s literally taking your sales away, [and] completely removing our products from the shelves,” Whiting said on a post-earnings call.
European shares extend gains, bond yields jump again
The German stock market has extended gains, with the Dax in Frankfurt opening 1.1% higher. Investors have been cheered by what economists nickname Berlin’s “big bazooka,” a fiscal sea change that could revive the German economy.
Other European stock markets are also pushing higher, extending yesterday’s rally, amid hopes of easing US tariffs, after the one-month reprieve for carmakers from new levies on Canada and Mexico.
France’s CAC is 0.6% ahead while Italy’s FTSE MiB has climbed more than 1%. The pan-European Euro Stoxx index has risen by 0.5%.
The FTSE 100 index in London is bucking the trend, down by 0.2% or 17 points at 8,737.
Germany’s borrowing costs are still rising after the prospective partners in the next German government agreed on Tuesday night to loosen the controversial debt brake to allow higher spending on infrastructure and defence.
The yield, or interest rate, on the 30-year German government bond has risen by 8 basis points to 3.15% this morning, after jumping by 25bps at one stage yesterday. The yield on the 10-year bond is up by 10bps to 2.886%.
The yield on the two-year UK government bond, known as gilt, is also surging, rising by 11bps to 4.396%, the highest since 21 January.
UK rate expectations shift; BCC predicts ‘long and challenging year for UK businesses’
Interest rate expectations have shifted in the UK. Financial markets are no longer fully pricing in two rate cuts by the end of the year, predicting 45 basis points of reduction from the current 4.5% base rate by December.
The shift came during yesterday’s Treasury select committee hearing, when Bank of England governor Andrew Bailey and other policymakers discussed the economic outlook.
Meanwhile, the British Chambers of Commerce (BCC) is predicting “a long and challenging year for UK businesses”.
It has become more gloomy about the growth outlook for the UK and said firms will struggle to invest as they deal with a raft of rising cost pressures.
The business lobby group now expects the UK economy to grow by 0.9% this year, revised down from its previous forecast of 1.3%. This year’s limited growth will be driven largely by increased day-to-day government spending. Growth is expected to accelerate slightly in 2026 to 1.4%, but that is also slightly down from the last forecast of 1.5%.
With businesses facing increased cost pressures following the autumn’s budget, inflation is now expected to remain above the Bank of England’s target until the last quarter of 2027. Inflation is forecast to be 2.8% by the end of this year, up from 2.2% in the last forecast, before falling to 2.1% by the end of 2026 and 2% in the fourth quarter 2027. The BCC expects unemployment to rise to 4.6% by the end of this year, from 4.4% now.
With stubborn inflationary pressures in the economy, the BCC is forecasting the Bank of England will continue to take a cautious approach to interest rate cuts. It expects just one cut in the base rate to 4.25% by the end of 2025, rather than two cuts to 4% as previously forecast. The rate is seen falling to 4% in 2026. No further cuts are then predicted through to the end of 2027.
Vicky Pryce, chair of the BCC Economic Advisory Council, said:
This is going to be a long and challenging year for UK businesses. The BCC’s forecast shows an economy struggling without the secure foundations to kickstart business investment.
Inflation will continue to be stubborn this year forcing the Bank of England to keep interest rates relatively high. Global uncertainties will add further dark clouds to the economic climate.
Businesses can’t simply rely on the promise of long-term strategies from government, they need support now to invest, recruit and trade.
Introduction: Pound rises above $1.29 as Trump fears hit dollar; Poundland chain up for sale
Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.
The pound has risen further to the heady heights of $1.29. It’s now trading above that level at $1.2916, the highest in four months and up nearly 0.2%.
Sterling has been boosted by a general slide in the US dollar, and a brighter mood in markets following a reprieve on US tariffs and the prospect of higher infrastructure and defence spending in Europe, led by Germany.
The dollar slid further against a basket of major currencies, after news that Donald Trump will exempt carmakers from 25% tariffs on Canada and Mexico for a month as long as they comply with free trade rules.
The euro also continues its rally and has hit a four-month high against the dollar, amid optimism sparked by Germany’s proposed €500bn infrastructure fund and overhaul of its borrowing rules. The European single currency rose by 0.3% to $1.0820 for the first time since 7 November.
Asian stock markets bounced, led by Hong Kong’s Hang Seng, up by 3.06% while Japan’s Nikkei climbed by 0.77%. In China, the Shanghai Composite rose by 1.17% while the Shenzhen Composite gained 1.77%.
The South Korean Kospi added 0.7%, despite news that a pair of fighter jets accidentally dropped eight bombs in a civilian district during a military exercise. Fifteen people were injured, two of them seriously.
European discounter Pepco Group said it is evaluating all strategic options to separate its struggling 825-store Poundland business in Britain this year, including a potential sale.
Ahead of an investor day, the Warsaw-listed group, which also owns the Pepco and Dealz brands, said it will focus on the Pepco brand “as the single future format and engine driver of group earnings”.
Pepco said in December it was considering options for the Poundland chain after it booked a €775m impairment charge, plunging the group to an annual loss of €662m.
Group like-for-like sales were up 1.5% in the eight weeks to 2 March, “with a strong performance from Pepco and Dealz offset by continued challenges at Poundland”.
The agenda
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8.30am GMT: Eurozone HCOB construction PMI
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9.30am GMT: UK S&P Global Construction PMI
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10am GMT: Eurozone retail sales for January
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1.15pm GMT: European Central Bank interest rate decision (quarter point cut forecast)
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1.30pm GMT: US trade for January, initial jobless claims for week of 1 March
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1.45pm GMT: ECB press conference
2.45pm GMT: ECB staff macroeconomic projections -
3.15pm GMT: ECB president Christine Lagarde speech
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8.15pm GMT: Bank of England policymaker Christine Mann speech
