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Construction Optimism Fades as Housing Market Cool

Construction Optimism Fades as Housing Market Cools

There are signs that Britain’s builders will not be enjoying the same amount of growth that they have been. While the third quarter of the last year has been their strongest run in the last 17 years, optimism plummeted in September.

The Markit/Cips construction PMI, a closely watched early indicator of activity, averaged 63.5 between July and September. A reading above 50 indicates growth, and this is the strongest quarterly performance since the second quarter of 1997.

Chief Markit economist, Chris Williamson, said the data provided “more encouraging news on the health of the UK economy”.

He added: “Although [construction] only represents around 6-7% of GDP, the sheer pace of expansion signalled by the PMI suggests that the construction sector can provide a meaningful boost to economic growth in the third quarter.” 

All elements of the sector showed strong growth, with house building growing at the fastest pace, followed by commercial property construction and civil engineering.

Despite this growth, this could be interpreted as showing signs that the strongest rates of expansion is behind us. The “business expectations” measure of the PMI has fallen to an 11-month low, the pace of house building has slowed for the last two months and optimism amongst builders is fading.

Williamson said: “Construction firms’ optimism in relation to the outlook fell to the lowest for nearly a year in September, sullied by concerns over a slowing housing market, shortages of both skilled labour and suitable subcontractors, higher interest rates and a general weakening of growth in the wider economy.”

Economist at the German bank Berenberg, Rob Wood also said: “While there is nothing to really worry about yet, we are cautious about growth over the next six months. Eurozone growth has disappointed, geopolitical risks have risen this year, the forthcoming general election creates domestic political risks, and the majority of the public expect rate hikes within the next 12 months. All of those could cause UK growth to ease a little in the near term.”