According to the latest PMI data by S&P and CIPS, the headline construction PMI for November has decreased significantly to 39.4, down from 44.1 in October. The headline index is now below 40 for the first time since the pandemic, and at levels normally only seen in times of crisis.

Housebuilding fell significantly to 35, while civil engineering is only just above 30.

Kelly Boorman, National Head of Construction at leading audit, tax and consulting firm RSM UK, said: “The headline construction PMI dropped significantly in November, to the lowest level since the pandemic. Housebuilding sank to levels only seen in the pandemic and financial crisis, demonstrating the frustration felt by housebuilders and lack of demand for new homes.

Civils fell below 40, which demonstrates nervousness ahead of the budget and fears around the impact of tax rises for the construction market. However, pipelines are now the largest they’ve ever been, so the current measure is not in line with sentiment today, and we would therefore expect to see this rising in future.

In the Autumn Budget the Chancellor continued to support the message of delivering funding for major infrastructure projects in rail, road, energy, education and healthcare and tax impact was seen to be deferred. Civil contractors therefore remain upbeat about their project pipelines, and we are seeing infrastructure projects begin to mobilise.

“However, uncertainty remains for housebuilders around the impact of the budget, with the new mansion tax coming in 2028, and additional 2% property income tax also on the horizon. These changes will impact property portfolios for landlords, and rental prices for tenants, making it potentially harder for young people to get a foot on the first rung on the property ladder, with no further incentives offered for help to buy.

“The new mansion tax will hit properties valued from £2m upwards, which will stimulate the market at the higher end, as people are encouraged to downsize to below the tax threshold before the change comes in. This could also boost housebuilding volumes at the lower end of the market, although we still expect house prices to be impacted, and these are forecast to be flat until 2028.”

She added: “The budget brought some disappointment to housebuilders, who hoped measures would be taken to reform the Stamp Duty Land Tax (SDLT) regime, which could have helped significantly stimulate the industry.”

Thomas Pugh, Chief Economist at RSM UK and Ireland, added: “The drop in the headline construction PMI to just 39.4 is yet another piece of evidence that pre-budget speculation about large tax rises was having a significant negative impact on business confidence.

Admittedly, output in the construction sector probably wasn’t as bad as the drop in the PMI indicated, and now that we know there won’t be major tax rises next year, confidence should return. But it doesn’t bode well for growth in Q4, where there is a real risk of flatling or even a contraction. Looking ahead, the construction sector should start to improve, as confidence improves after the budget, and interest rates come down a little further.”

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