According to the November 2024 Purchasing Managers’ Index (PMI), commercial construction expanded at the fastest pace for two-and-a-half years last month, while residential work declined at its steepest rate since June.
Overall, thanks to the civil engineering sector also in growth mode on the back of major infrastructure projects, the overall headline PMI rose to a healthy 55.2 in November, up slightly from 54.3 in October. The headline index has now posted above the neutral 50.0 threshold for nine months running.
However, new order growth eased to a five-month low and year-ahead business activity expectations were the least upbeat since October 2023.
For commercial construction output the score shot up from 52.8 in October to 58.1 in November. Survey respondents commented on improving customer demand and new opportunities to tender, despite relatively subdued economic conditions.
Civil engineering activity slipped slightly, from 56.2 to 55.9, a three-month low but still solidly in growth territory.
House-building remained by far the weakest-performing category of construction work in November, with its PMI slipping from 49.4 to 47.9. Builders once again noted that elevated borrowing costs and fragile consumer confidence had an adverse impact on demand conditions.
New business volumes increased across the construction sector as a whole for the tenth successive month in November and at a sold pace. The rate of growth nonetheless slipped to its lowest since June. There were some reports that political and economic uncertainty linked to the autumn budget had affected client confidence. Where growth was reported, it was often linked to new projects in the commercial sector.
Around 43% of the survey panel predict an increase in business activity during the year ahead, while 21% forecast a reduction. Although this signalled upbeat business expectations across the construction sector, the degree of optimism was down sharply since October and the lowest for 13 months. Anecdotal evidence from survey respondents widely suggested that worries about the UK economic outlook and impact on business investment from rising employment costs had weighed on business optimism in November.
Tim Moore, economics director at S&P Global Market Intelligence, which conducts the survey, said: “The construction sector bucked the slowdown seen elsewhere across the UK economy in November, according to the latest S&P Global PMI survey. Total industry activity once again expanded at a robust pace and there has been a clear acceleration in growth compared to that seen in the first half of 2024.
“However, the recovery in construction activity remains somewhat lopsided. Strengthening demand for commercial work and civil engineering projects contrasted with a sustained downturn in house-building. Commercial construction activity expanded at the fastest pace for two-and-a-half years in November, while residential work declined at the steepest rate since June. Elevated borrowing costs and fragile client confidence meanwhile acted as a brake on new order growth in November, with the upturn in sales the slowest for five months.
“A loss of momentum for new work, alongside concerns about rising employment costs, resulted in weaker job creation and falling business optimism across the construction sector. The degree of positive sentiment regarding year-ahead growth prospects dropped to the lowest since October 2023. Many construction companies cited concerns about the near-term UK economic outlook and subsequent cutbacks to new projects.”
Brian Smith, head of cost management at construction consultant Aecom, said: “The construction industry has enjoyed a period of growth during 2024 from the low point of last winter, and November’s rise is another clear indicator that the sector has broadly got to grips with managing its long-term cost challenges.
“As firms prepare for the full impact of the budget next year, a further interest rate cut this month or early next year would provide a further boost to the industry. Falling rates should support the housing market in 2025 as well as much-needed private sector investment which, together with the government’s £100bn spending commitments, will be vital to growth. Should that investment translate into spades in the ground, it’s crucial that firms are prepared to deliver – from both a cashflow and labour perspective.”
Gareth Belsham, director of Bloom Building Consultancy, commented: “Construction isn’t so much a two-speed as a two-direction industry. With levels of commercial construction roaring ahead, and rising at their fastest rate for two and a half years, house-building is stuck in reverse. In fact residential construction has contracted for two months in a row, and November’s decline was the fastest seen since summer.
“With residential developers still chafing at high interest rates – which make it more expensive for them to buy land and build homes – and patchy consumer demand, the government’s promise to get 1.5 million more homes built in England over the next five years is looking ever more pie in the sky.
“Official data shows that the value of new orders placed by private sector housebuilders in the third quarter of 2024 was down by a painful 34.4% compared to Q3 2023. With costs rising and demand falling, there’s now a real risk of stagflation in residential construction.
“By contrast, we’re seeing lots of commercial property developers pressing the button on previously paused investment plans, as well as an increase in the number of commercial property landlords investing in repair and refurbishment to generate extra value from their existing buildings.
“In many ways the momentum of the commercial property sector is dragging the wider construction industry in its wake. The headline figures still look good, but the scale of the imbalance between sectors is alarming and getting worse.”
Brendan Sharkey, real estate and construction specialist at accountancy group MHA, said: “The upturn in construction activity has come as a welcome surprise to the industry with commercial work charging ahead of the other subsectors. However, the overall UK economic outlook has weakened with an anticipated uptick in inflation, a delay in further interest rate cuts and an increase in the cost of labour seems to be weighing on the general housebuilding subsector.
“The anticipated falls in interest rates that were predicted earlier in the year for this month and early 2025 will have already been banked in by many, and the stagnation will come as a blow to many businesses and house buyers, particularly as mortgage rates have also gone up.
“While there was positive news for the construction of social housing in the budget, optimism in the general housing sector has deflated. House buyers will either be looking to complete before Christmas or will wait until the spring. Either way, they will want to get purchases through before the increase in stamp duty in April, which will further dampen the housing market.
“The UK Housing Review in April 2025 should provide some clarity to the market but the reality is that only a fall in interest rates will spur on housebuilding activity. Affordability along with job security are the key components for housing demand. However, despite the gloomy economic outlook, there are a couple of bright spots, including a steady commercial ‘A’ grade property market and external investors investing in higher priced properties as they continue to view the UK market as a safe haven.”
