Construction activity stalls amidst post-Budget uncertainty and incoming NICs rise

According to the latest PMI data by S&P and CIPS, the headline construction PMI for January decreased to 48.1, down from 53.3 in December and continuing the downward trend at the end of 2024. 

The main contributors to the latest decrease were housing, civil engineering and commercial activity, which fell to 44.9, 44.6 and 48.9. Housing activity fell for the fourth consecutive month and at the fastest pace since January 2024.

Kelly Boorman, National Head of Construction at RSM UK, said: “The headline construction PMI saw a sharp fall in January, continuing the downward trend seen at the end of 2024. The latest downtick comes amidst falls across the board, demonstrating a loss of confidence and increased uncertainty post-Budget, as well as the usual seasonal slowdown expected at the start of Q1. Adverse weather conditions including Storm Eowyn also brought construction activity to a temporary halt. The fall in civil engineering activity further reflects prolonged sector nervousness and scaling down on works, as businesses are waiting on government to commit funding for infrastructure projects in the upcoming Spending Review. 

“We’re still seeing a lag in project mobilisation, with legacy contracts continuing to take up management time causing further delays. Pipelines remain strong but, businesses are being cautious about procurement to manage tight margins and ensure they have appropriate capacity and secured supply chains. As a labour-intensive industry, construction is also bracing for post-Budget headwinds including rises to employers’ National Insurance contributions which could worsen labour shortages. It’s therefore unsurprising to see a slowdown in construction activity, specifically housing which has the added complexity of changing mortgage rates and the removal of Help to Buy, leading housebuilders to reduce their volumes to avoid stockpiling.” 

She added: “It’s going to be a bumpy few quarters, but housebuilders should remain optimistic towards housing volumes after Q2 2025, anticipating increased demand as government looks to realise its mandatory targets. The added employment costs may also encourage businesses to invest in technology to bridge the labour gap and move towards modern methods of construction.”