Concerns about increased NI costs and speed of interest rate cuts dampen sector confidence for next year

Construction activity was up in November but the rise was tempered by weakening confidence in new output and expectations for the coming year.

The S&P Global UK Construction Purchasing Mangers鈥� Index (PMI) showed a score of 55.2 in November, up from 54.3 in October.

It is the ninth successive month of growth in output. Any score above the 50 no change mark indicates growth.

But the index, a key bellwether, said the impact of tax rises announced by chancellor Rachel Reeves in the October Budget had dampened the mood about prospects for the coming 12 months with optimism 鈥� with 43% predicting an increase in business 鈥� down to its lowest level since October last year.

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Source: HM Treasury/Flickr

The NI tax rises announced in chancellor Rachel Reeves鈥� Budget have hit confidence, the PMI index said

The report added: 鈥淎necdotal 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.鈥�

November鈥檚 rise in the headline output figure was driven by the strongest rise in commercial work for two-and-a-half years with a score of 58.1. Civil engineering posted a score of 55.9 but housebuilding鈥檚 woes continues with a score of 47.9, the second month in a row where it was in negative territory.

鈥淐onstruction companies once again noted that elevated borrowing costs and fragile consumer confidence had an adverse impact on demand conditions,鈥� the report added. 鈥淭here were some reports that political and economic uncertainty linked to the Autumn Budget had affected client confidence.鈥�

Tim Moore, economics director at S&P Global Market Intelligence, said: 鈥淎 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.鈥�

Brian Smith, Aecom鈥檚 head of cost management, added: 鈥淎s 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.鈥�

And RSM UK economist Thomas Pugh said: 鈥淭he positive headline number masks clear signs of nervousness after the Budget.

鈥淭he unexpected large jump in commercial activity from 52.8 to 58.1, masks a slowdown in civil engineering and housing activity. As such, it raises the risk that the increase in the headline PMI last month won鈥檛 translate into more activity in the official data.鈥�

Brendan Sharkey, real estate and construction specialist at accountant MHA, admitted: 鈥淭he 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.鈥�