Housebuilding woes ahead of Budget weigh on construction activity

Growth in the construction sector slowed sharply in October, a new survey showed, as uncertainty ahead of the Budget knocked housebuilding activity.

Having reached a 29-month high in September, S&P’s construction purchasing managers’ index (PMI) “slowed considerably” last month.

The overall index dropped to 54.3 in October, down from 57.2 in September but still comfortably above the 50 no-change threshold. PMIs measure business activity in the private sector.

Tim Moore, economics director at S&P Global Market Intelligence, said the construction sector saw “solid output growth” in October despite being “unable to match the highs seen in September”.

The survey showed that civil engineering remained the top-performing subsector, posting 56.2.

This was largely thanks to strong growth in renewable energy infrastructure, which has been a major focus of the new government’s planning reforms.

While commercial work expanded too, the increase was the weakest since the current period of growth began in April.

Housebuilding, however, slipped back into contraction for the first time since June as consumer demand suffered in the weeks leading up to last month’s Budget.

“Government policy uncertainty, fragile consumer confidence and elevated borrowing costs were all constraints on demand for house building projects,” Moore said.

Despite the negative signal from the PMI survey, a number of other indicators suggest the housing market is slowly recovering from the impact of the Bank of England’s interest rate hikes.

Mortgage approvals climbed to their highest level since August 2022 last month while house prices have steadily increased, albeit slowly. Markets expect one more rate reduction this year, which should help ease pressure on mortgage costs further.

Alongside falling output, the survey showed that construction firms were the least confident about their growth prospects since December last year.

Nevertheless, the rate of job creation accelerated to a three-month high as most firms continued to report strong levels of demand.