Infrastructure projects boost confidence despite housing headwinds

The headline construction PMI fell slightly in August to 44.3, down from 44.7 in July. While the sector has remained in contraction for 20 consecutive months, commercial activity declined at its slowest pace since January, rising to 47.8. Civil engineering activity also eased to 40.5.

However, affordability pressures and subdued buyer demand continued to weigh on residential construction activity, which fell to 37.6.

Carly Thorpe, partner in the Construction & Engineering team said: “August’s PMI figures present a mixed picture but indicate that the sector is gradually stabilising, with slower rates of contraction across commercial and civil engineering works. While overall activity remains subdued, there are encouraging signs that government funding and significant project announcements are boosting market confidence and securing future pipelines. The uptick in civil engineering is also helping to offset weaker performance elsewhere, with transport, energy and grid projects moving from planning into delivery. We’re also starting to see Spending Review funding commitments translate into activity on the ground, which is building momentum for a partial recovery in Q4.

“Housebuilding remains the weakest part of the market, with affordability pressures and buyer demand continuing to dampen output. With mortgage approvals at their lowest level since January 2024, many developers are taking a cautious approach to new projects. At the same time, council planning department resourcing challenges, the introduction of the Building Safety Levy and ongoing delivery constraints are adding further uncertainty to scheme viability, creating additional hurdles for the sector’s recovery.”

She added: “Despite these short-term headwinds, it’s not all doom and gloom. Recent government commitments on housing delivery, alongside Homes England’s funding allocation to 33 strategic partners and ongoing planning reforms, should help strengthen confidence in the longer-term development pipeline and unlock future investment opportunities. The key challenge will be ensuring projects can be delivered within budget as inflationary pressures persist across materials, labour and supply chains.”