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
ECB cuts interest rates by quarter point
The European Central Bank has cut its three key interest rates by a quarter point, as expected.
It is its second rate reduction this year.
It said:
The disinflation process is well on track. Inflation has continued to develop broadly as staff expected, and the latest projections closely align with the previous inflation outlook. Staff now see headline inflation averaging 2.3% in 2025, 1.9% in 2026 and 2.0% in 2027.
The upward revision in headline inflation for 2025 reflects stronger energy price dynamics. For inflation excluding energy and food, staff project an average of 2.2% in 2025, 2.0% in 2026 and 1.9% in 2027.
Most measures of underlying inflation suggest that inflation will settle at around the Governing Council’s 2% medium-term target on a sustained basis.
In just a couple of minutes, the European Central Bank will announce its latest interest rate decision, which is widely expected to be a quarter point cut.
Half an hour later, ECB president Christine Lagarde will explain the central bank’s thinking at a press conference in Frankfurt. We’ll be watching, of course.
Ahead of the decision, European stock markets are in the red with the exception of Germany’s Dax.
The bond selloff has continued – it started after news on Tuesday night that Germany intends to loosen its controversial debt brake to allow higher spending on infrastructure and defence. This means higher borrowing and has pushed the yield or interest rate, on German and other government bonds sharply higher.
The yield on the 10-year German bond, known as Bund, is up by 5 basis points to 2.83%, after hitting 2.929% yesterday.
Ireland’s economy grows by 2.7% but output down in Q4
Ireland’s economy grew by 2.7% last year, better than expected, but recorded a decline in economic output in the final quarter of 2024.
This was just above the 2.5% expected by the Irish finance ministry and ahead of 2.6% growth in 2023 – despite a 1.1% economic decline quarter-on-quarter in the last three months of 2024, according to the Central Statistics Office.
The drop was driven by a fall of 27% in machinery and equipment, and a 3.3% decline in construction. Personal consumption grew by 1.6%, driven by spending on services (rather than goods).
As Ireland’s large multinational sector tends to distort gross domestic product (GDP), officials prefer to use modified domestic demand to gauge the strength of the economy. GDP grew by 1.2% last year, and by 3.6% quarter on quarter between October and December.
Finance minister Paschal Donohoe said the figures showed the “relatively healthy aggregate position of the domestic economy” alongside strong growth in tax receipts, according to figures published yesterday.
The external outlook, however, has become increasingly uncertain in recent months against a backdrop of increasing global fragmentation. As a major beneficiary of global economic integration, the Irish economy is exposed to the reversals currently underway.
He was, no doubt, referring to new US tariffs (on Canada, Mexico and China) and the prospect of trade wars.
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 against a backdrop of long NHS waiting lists. NHS work rose by 8.8% year on year to £448.2m – £367.4m in hospitals and £80.8m in primary care.
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.
