Construction PMI: greater clarity needed on housebuilding incentive
Today’s PMI data by S&P and CIPS showed the headline construction PMI for October fell to 43.6 from 46.1 in September. This was largely driven by a decrease in housebuilding activity to 35.1, down from 40.7 in September.
Civil engineering rose to 45.9 from 42.2 in September, while new orders decreased to 45.2, and future activity fell from 55.0 to 53.2.
Kelly Boorman, national head of construction at leading audit, tax and consulting firm RSM UK said: “Today’s figures highlight a worrying downturn in sentiment across the construction sector, particularly housing. Having seen significantly reduced volumes throughout 2026, housebuilders brace for a quiet Q4, historically a busy period, with no clear sign of volume uplifts into the first half of 2027.
“Rising build costs and stagnant house prices continue to squeeze margins and drive concerns around site viability. With inflation and interest rate hikes on the horizon, housebuilders need greater clarity around timelines for delivery of the ‘Your First Home’ scheme and delivery of the £39bn affordable homes funding. Delays in mobilising funding and incentives risk hampering short-term demand on home starts.
“While civil engineering activity improved slightly, there remains uncertainty around when and how major projects will be awarded and mobilised. This limits businesses’ ability to effectively scale and manage working capital. If new projects are awarded at a similar time, this risks putting significant pressure on supply chain and workforce capacity in the long term.
“Looking ahead, the government’s focus on increasing affordable housing funding is promising, with developers looking to forge new strategic partnerships in anticipation of increased volumes. However, the industry is braced for a suppressed first half of 2027 as government mobilises funding and buyers and investors feel the impact of the macro-economic environment.”
Thomas Pugh, chief economist at RSM UK added: “The construction PMI dropped to 43.6 in October, the weakest since June, which suggests the sector continues to struggle against a backdrop of higher energy prices, elevated market interest rates, and persistent uncertainty over planning reforms.
“We see little immediate relief for housebuilders, as weaker real income growth and a sharp repricing in mortgage rates both weigh on demand. The ‘Your First Home’ scheme may help boost demand, but fundamentally, it’s another demand side measure for what is ultimately a supply side problem. These types of schemes do little to help long term housing affordability, because the scheme is attempting to help with the symptom of high housing costs rather than addressing the underlying cause, which is the viability of building and lack of supply.
“The good news is that oil prices have fallen by almost 20% since the end of October, which should provide a little relief towards the end of the year if oil remains below $100 per barrel. However, constrained refining capacity means that refined product prices have already risen by far more than oil prices alone would suggest, and will remain elevated. That’s likely to keep builder’s margins under pressure.”