Construction SME activity slows as new orders decline, says NatWest

Construction SMEs narrowly avoided stagnation in the last month of 2024, a new survey has revealed.

The latest quarterly UK Business Growth Tracker analysis from NatWest, published this morning (22 January), revealed a slight increase in activity at the end of 2024.

But its seasonally adjusted index stood at 50.2 in December, marking its lowest point in six months.

A score of 50 or lower denotes declining activity.

The December score was due to a decline in new orders and reduced tender opportunities, particularly in infrastructure projects, NatWest said.

It added that construction SMEs registered modest growth in the second half of 2024, with an average monthly activity index of 52.3.

But despite the gloomy performance, SMEs showed resilience in employment with four consecutive months of job creation, albeit at modest levels.

Laura Capper, head of manufacturing and construction for NatWest, said: “The [construction] sector’s resilience will be tested in 2025 as businesses navigate tightening margins, reduced tender opportunities, and economic uncertainty”.

She added: “Encouragingly, improved marketing efforts and targeted recruitment point to a proactive stance, but sustained growth will depend on addressing key structural challenges and fostering a more favourable demand environment.”

According to the Office for National Statistics (ONS), there were 870,000 construction SMEs in the UK  in 2024 – more than any other sector of the economy.

The latest NatWest survey followed yesterday’s ONS data, which showed the construction industry again topped the table for insolvencies last year.

And earlier this month, other data revealed the pace of construction industry growth had slowed in December.

Looking ahead, NatWest flagged uncertainties for construction SMEs over increased National Insurance contributions (from April this year) and declining tender opportunities. Rising costs would limit the financial flexibility of SMEs and contribute to narrower profit margins, its report said.

Noble Francis, chief economist at the Construction Products Association, told Construction News earlier this month: “We’re starting to see a recovery in demand because we are coming back from the low base that was 2023. Inventories are being improved by bigger firms because they have the space and funds. But this isn’t the same for small firms, and the majority of the [construction] sector are SMEs.”