Construction PMI: Labour costs, tariffs and planning delays threaten housebuilding targets

According to the latest PMI data by S&P and CIPS, the headline construction PMI for April increased slightly to 46.6, up from 46.4 in March, but remained below 50 for the fourth consecutive month.

The main contributors to the monthly uptick were housing and civil engineering activity, which rose to 47.1 and 43.1.

Kelly Boorman, National Head of Construction at RSM UK, said: “Despite the slight uplift in construction activity, the headline PMI is still well below 50, signalling further challenges for the industry. Input prices remained high at 64.2 amid rising employers’ National Insurance contributions and an increase to the National Minimum Wage, with these cost pressures beginning to impact labour-intensive industries like construction. Uncertainty towards tariffs is also growing, which could lead to higher costs for construction materials, difficulty accessing quality materials, supply chain disruption and project delays. The threat of tariffs and unpredictability in the supply chain are creating a competitive environment for subcontractors to compete on price and negotiate better terms – reflected in the use of subcontractors index which increased to 45.7.

“In addition, housing activity remained below 50 for the seventh consecutive month, which is to be expected given current market uncertainty. We’ve recently seen housebuilding in London slump to its lowest level since 2009. Against a backdrop of tight margins, rising labour costs, fixed-term contracts and falling house prices, it’s becoming difficult for housebuilders to absorb these costs. Despite the government’s focus on innovation, data and digital transformation, construction businesses lack the working capital to invest in technology and improve productivity.”

She added: “Planning reforms were expected to alleviate some of these pressures, however their impact is yet to be seen. Local authority frameworks are also contributing to delays in much-needed development. To stimulate housing activity and enhance business confidence, mortgage rate stability and buyer confidence must improve. It’s therefore important that the incoming Housing Strategy takes a holistic approach – one that incentivises businesses and consumers – to ensure a long-term boost to housebuilding and overall economic growth.”

Thomas Pugh, Economist at RSM UK, added: “It’s no surprise the construction sector registered another sub-50 reading as the uncertainty from tariffs continues to weigh on the whole economy.

“What’s more, the input prices index remains well above 50 at 64.2, signalling rising prices, that was probably propped up by the huge increase in employment costs that came into effect in April. That said, the employment index rose slightly to 47.5 but remained in contractionary territory as firms clearly remained conscious about hiring decisions amid increased uncertainty and higher costs. That could be a headwind for the government who are already worried labour shortages will stop them short of their target to build 1.5 million homes, despite significant planning reform.

“However, since Trump’s tariffs were first announced bets on Bank of England rate cuts have ramped up and the odds of consecutive cuts have risen sharply. Combined with continued strong growth in real household incomes, that should boost affordability and support house prices, which we expect to grow by around 4% this year. What’s more, higher government spending in infrastructure will help to boost demand, providing a further tailwind to growth. Ultimately, we expect the construction sector will outperform the broader economy, despite the uncertainty from tariffs.”