Construction activity again fell more rapidly than expected at the start of the year. At 48.4, the sector PMI was 0.4 points weaker than in December and indicative of the steepest decline in sector activity since May 2020.

House building (44.8) was the worst performing category but commercial work (48.2) also contracted for the first time in five months while civil engineering (49.7) was almost flat. Aggregate new orders were down for the third time in the last four months and purchasing activity had its worst time since May 2020. At the same time, job shedding was the most marked in two years. However, weaker demand contributed to cost inflation slowing to its lowest level since December 2020 and against this backdrop, business confidence rebounded from December's 31-month low.

Still, the construction sector faces a difficult near-term outlook and will most likely subtract from GDP growth this quarter. Today's surprisingly poor update puts the UK's ECDI at minus 23 and the ECDI-P at minus 21. Both measures show that overall real economic activity is falling short of market expectations.

The headline index is expected to edge up from 48.8 to 49.5 in January.

The Construction Purchasing Managers' Index (PMI) provides an estimate of business activity in the UK construction sector for the preceding month based on data compiled from monthly replies to questionnaires sent to purchasing executives in over 170 construction companies. The panel is stratified geographically and by Standard Industrial Classification (SIC) group, based on the regional and industry contribution to gross domestic product. Results are synthesised into a single index which can range between zero and 100. A reading above (below) 50 signals rising (falling) activity versus the previous month and the closer to 100 (zero) the faster is activity growing (contracting). The data are compiled by the Chartered Institute of Purchasing and Supply (CIPS) and S&P Global.

The survey is based on techniques successfully developed in the USA over the last 60 years by the National Association of Purchasing Management. It is designed to provide one of the earliest indicators of significant change in the economy. The data collected are not opinion on what might happen in the future, but hard facts on what is actually happening at 'grass roots' level in the economy. As such the information generated on economic trends pre-dates official government statistics by many months.