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UK construction activity contracted much more than expected and at the fastest pace for more than five years in October, as buyers delayed decision-making amid high political uncertainty, according to a closely watched survey.
The S&P Global UK construction purchasing managers’ index fell to 44.1 in October, down from 46.2 in September and below the 50 mark, which separates contraction from expansion, for the 10th consecutive month.
The fall marks the longest period of continuous decline since the global financial crisis more than 15 years ago. October’s figure was also the lowest since May 2020 and below the 46.7 forecast by economists polled by Reuters.
Tim Moore, economics director at S&P Global Market Intelligence, said: “Reduced workloads were again widely attributed to risk aversion and delayed decision making among clients, which contributed to a slower than expected release of new projects.”
The data came ahead of the Bank of England’s announcement on interest rates on Thursday, as the central bank tries to strike a balance between bringing down inflation and supporting growth.
The survey figures do not necessarily directly translate into the size of construction output. In the three months to August, construction output rose by 0.3 per cent compared with the previous three months, according to separate official statistics, even as the PMIs indicated a contraction.
But economists said the figure for October was still significant.
“We take the mood music seriously here, as the plummeting PMI suggests that projects are being postponed ahead of the Budget. Accordingly, we see downside risks to our call for GDP growth in Q4,” said Elliott Jordan-Doak, economist at the consultancy Pantheon Macroeconomics.
The construction PMIs contrasted with the trend in other sectors, with equivalent figures for the services sector showing a marked improvement in September, according to data published on Wednesday.
Chancellor Rachel Reeves is widely expected to raise taxes later this month to fix a hole in the public finances estimated between £20bn and £30bn. Higher council taxes on expensive residential properties are among a list of tax options under consideration by the Treasury.
The decline in the construction PMI was broad-based, with civil engineering reporting the sharpest contraction at 35.4, the lowest since May 2020, generally attributed to a lack of new work.
Residential work was also deep into contraction at 43.6, the sharpest in eight months, with only commercial building showing some resilience but still in contraction at 46.3.
The survey reported that shrinking workloads and increased payroll costs meant that staffing numbers were reduced again in October, and at the fastest pace for just over five years.
Demand for construction products and materials dropped at a sharp and accelerated pace in October, which mirrored the trends seen for output and new orders.
Matt Swannell, economist at the consultancy EY Item Club, said the prospects for the construction sector were “mixed”. On one hand, the government investment and planning reforms will offer some support to the sector, he said.
But he added that “ongoing uncertainty around the domestic economy and a further increase in taxes at the autumn Budget may cause some private sector projects to be delayed or cancelled, while labour shortages continue to reduce the viability of some new construction”.
