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British construction activity shrank much more than expected in October and at the fastest pace in more than five years as buyers postponed decision-making amid deep political uncertainty, a closely watched survey showed.
The S&P Global UK Construction Purchase Managers’ Index fell to 44.1 in October, down from 46.2 in September, and below the 50 mark, which separates contraction from expansion, for the tenth month in a row.
The decline marks the longest period of continuous decline since the global financial crisis more than fifteen years ago. October’s figure was also the lowest since May 2020 and lower than the 46.7 forecast by economists polled by Reuters.
Tim Moore, economics director at S&P Global Market Intelligence, said: “The reduced workload was again widely attributed to risk aversion and delayed decision-making among clients, contributing to a slower-than-expected release of new projects.”
The data came ahead of the Bank of England’s interest rate announcement on Thursday, as the central bank tries to strike a balance between reducing inflation and supporting growth.
The survey figures do not necessarily translate directly into the volume of construction production. According to separate official statistics, construction output rose 0.3 percent in the three months to August compared with the previous three months, even as PMIs pointed to a contraction.
But economists said the October figure was still significant.
“We’re taking the mood music seriously here, as the falling PMI suggests that projects are being postponed ahead of the budget. Accordingly, we see downside risks to our call for GDP growth in the fourth quarter,” said Elliott Jordan-Doak, economist at the consultancy Pantheon Macroeconomics.
Construction PMIs contrasted with the trend in other sectors, with similar figures for the services sector showing a marked improvement in September, data published on Wednesday showed.
Chancellor Rachel Reeves is widely expected to raise taxes later this month to plug a hole in the public finances estimated at between £20 billion and £30 billion. Higher council taxes on expensive homes are among a list of tax options being considered by the Treasury.
The decline in construction PMI was broad-based, with civil engineering reporting the sharpest contraction at 35.4, the lowest since May 2020, which is generally attributed to a lack of new work.
Residential construction also showed a deep contraction at 43.6, the sharpest in eight months, with only commercial construction showing some resilience but still contracting at 46.3.
The survey found that declining workloads and higher wage costs led to further workforce cuts in October, at the fastest pace in just over five years.
Demand for construction products and materials fell at a sharp and accelerated pace in October, reflecting trends in production and new orders.
Matt Swannell, economist at consultancy EY Item Club, said the outlook for the construction sector was “mixed”. On the one hand, government investment and planning reforms will provide some support to the sector, he said.
But he added that “continued uncertainty around the domestic economy and a further increase in taxes during the autumn budget could lead to some private sector projects being postponed or cancelled, while labor shortages continue to reduce the viability of some new construction projects”.
