Construction PMI: Construction activity increases despite planning constraints

According to the latest PMI data by S&P and CIPS, the headline construction PMI for November increased to 55.2, up from 54.3 in October, reversing the downward trend of the previous month. 

The main contributor to the latest increase was commercial activity, which jumped sharply to 58.1, offsetting falls in housing and civil engineering activity. 

Stacy Eden, National Head of Real Estate and Construction at RSM UK, said: “November saw a slight increase in the construction PMI, despite economic challenges, geopolitical tensions and some market uncertainty following the Autumn Budget. As such, this may imply a settling of industry sentiment once businesses had time to process the impact of the Chancellor’s update. However, the rise in November was driven by a sharp jump in commercial activity, which although positive, is steeper than expected. This increase also offsets further falls in housing and civil engineering activity, which were anticipated, especially as the government’s housebuilding targets have come under much scrutiny recently. 

“The industry is held back by land availability, affordable housing, productivity and labour shortages, with the root cause of these issues being the planning system. Although it’s encouraging to see government’s changing attitude towards housing and its role in stimulating the economy, construction businesses remain concerned about planning which slows down housebuilding due to lack of flexibility, delays, land banking and its unpredictable and complex nature.” 

He added: “While it is positive to see increased funding from government, housebuilders already feel like they’re playing catch up given there’s a shortage of housing in the UK and ongoing labour constraints, and we’re falling behind our European counterparts. Industry therefore needs clarity on the incoming Planning and Infrastructure Bill, which is expected early in 2025, alongside the role of Skills England to ensure greater certainty so businesses can deliver on government’s bold housing targets.” 

Thomas Pugh, Economist at RSM UK, said: “The tick up in the construction PMI in November to 55.2 suggests construction activity held up in November. However, the positive headline number masks clear signs of nervousness after the Budget.

“The unexpected large jump in commercial activity from 52.8 to 58.1, masks a slowdown in civil engineering and housing activity. As such, it raises the risk that the increase in the headline PMI last month won’t translate into more activity in the official data.

“There were also clear signs that the Budget has hit confidence. The employment index dropped to 50.4 and the future activity index dropped to 61.1, the lowest level in a year. However, the drop in the sentiment indicators probably exaggerates the impact on activity over the next few quarters as these measures tend to react especially strongly to political events.

“Overall, businesses are currently focusing on the increase in costs from the Budget but an increase in government investment, falling interest rates, rising house prices and an acceleration in economic growth next year should all be positive for the construction sector over the next year.”