Today the PMI data by S&P and CIPS showed the headline construction PMI for September increased to 46.1, up slightly from 44.3 in August. Housebuilding also rose to 40.7, up from 37.6 in August.

Civil engineering rose to 42.2 from 40.5 in August, while new orders reduced from 47.7 to 45.9, and future activity fell from 59.1 to 55.0.

Kelly Boorman, National Head of Construction at leading audit, tax and consulting firm RSM UK said: “Despite the slight increase, today’s PMI shows housing starts remain suppressed, with market sentiment remaining uncertain around when demand will return. The ‘Your First Home’ buyer incentive announced by the Government recently will help boost market sentiment, but businesses fear this will take several months to have any real impact on the ground. With the final quarter of the year normally the busiest, housebuilders are growing increasingly concerned that demand will remain low throughout the rest of this year, and into the traditionally quieter first quarter of next year.

“Housebuilders need greater clarity around future demand, with concerns around the viability of sites that were originally set for development, but which will now need to be reassessed. This reassessment of viability could hamper delivery of regional housing targets.

Affordable homes developers continue to grapple with red tape around funding regimes, and a lack of transparency around pipeline volumes and delivery timetables. Interest rate rises anticipated next year also raise some significant concerns over mortgage affordability, which could further suppress housebuilding.

“For civil engineering, details on where infrastructure spend will be allocated in the Autumn Budget is eagerly awaited to give the sector clear sight of the future pipeline of projects. Many businesses continue to deliver pipeline projects secured years ago, and we have seen growth in some sectors. But concern is building around the ability to deliver, as the viability of projects is increasingly threatened by inflation and a squeezed supply chain.

“Government commitments to develop defence and energy infrastructure will stimulate construction activity, creating demand for storage, distribution, logistics and manufacturing units. But challenges remain around the potential timeline of contract awards, mobilisation of projects, and the capacity of the supply chain and workforce to deliver.”

Thomas Pugh, chief economist at RSM UK added: “Despite the construction PMI rising to 46.1, the 21st consecutive sub-50 reading suggests the sector continues to struggle against a backdrop of higher energy prices, elevated market interest rates and persistent uncertainty over planning reforms. Even the fourth hottest September on record, which would usually boost activity, has been little help with the official data showing output falling in three out of the last four months.

“We see little immediate relief for the sector as weaker real income growth and a sharp repricing in mortgage rates both weigh on demand. What’s more, refined products such as diesel have risen by far more than oil prices alone would suggest. Renewed tensions in Iran and limited global refining capacity are likely to keep builder’s margins under pressure for the rest of the year.

“The 'Your First Home' scheme may boost demand a little, but fundamentally, it’s another demand side measure for what is ultimately a supply side problem. These types of schemes do little to help housing affordability in the long term, because the scheme is attempting to address the symptom of high housing costs, rather than the underlying cause, which is the viability of building and lack of supply.

“The good news is that the fiscal rules are much more generous to investment spending than day-to-day spending, which should give John Healey the space to embark on Andy Burnham’s ambitious housebuilding targets, which should provide a tailwind to demand.”

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