According to the latest PMI data by S&P and CIPS, the headline construction PMI for December has increased slightly to 40.1 after hitting a low of 39.4 in November. The headline index is showing signs of recovery, having previously plummeted to levels normally only seen in times of crisis.

However, whilst civil engineering rose to 32.9 (from 30.0), housebuilding dropped to 33.5 (from 35.4).

Kelly Boorman, national head of construction at leading audit, tax and consulting firm RSM UK, said: “It’s encouraging to see the headline construction PMI recovering after a significant fall in November down to levels last seen during the pandemic. However housebuilding continued to drop, but we see this as more reflective of a lag between the prior impacts of the November Budget and a noticeable increase in enquiries since then. The future activity index saw a marked uptick, which again reflects what we are seeing on the ground, and input prices also improved as a result of falling inflation. Conversely, housebuilders do continue to raise concerns around planning delays and the lack of incentives for first time buyers which is essential if the government is to continue driving the target of building 1.5 million new homes.

“We expect to see more people planning to move in 2026, driven partly by delayed reservations in 2025 and downsizing in response to the mansion tax announced in the budget. Those who don’t want to pay will be looking to move swiftly to avoid the new tax - our recent Real Estate 360 research found 18% of real estate and construction businesses expect to see an increase in downsizing as a result.

“Challenges remain for home buyers around mortgage accessibility and funding deposits, and we are not yet seeing the full impact of mortgage rate cuts filtering through. This means housebuilders have had to offer higher levels of incentives and better part exchange offers to stimulate the market further, despite building volumes rising slightly before Christmas.

“The rise in civil engineering activity reflects the recent mobilisation of larger projects as part of the government’s drive to invest in infrastructure. Ongoing delivery challenges could hinder these projects, which is creating some nervousness within the construction industry. As major infrastructure projects mobilise, this will create tension in the supply chain, with many struggling to fund working capital for growth. This could also be putting smaller private projects at risk, as the supply chain becomes stretched.

“The cost of debt and lack of appetite from lenders in the industry, is a cause of concern for construction businesses and it is expected that this will likely result in an increase in distressed businesses resulting in a rise in insolvencies in 2026.

“Despite increasing mobilisation and a significant pipeline of projects, we have not yet seen a push from government to address the affordability and availability of debt. It also remains to be seen how the new NISTA (National Infrastructure and Transport Authority) board will help to improve efficiencies in major infrastructure and building projects, to aid the burden of procurement, planning and more efficient delivery.

“Material costs are stabilising, but as growth continues to improve, we expect those figures to tighten.”

Related news