This article is more than 3 years old

This article is more than 3 years old

Housebuilding surged in September, smashing City expectations and lifting the construction industry out of an EU referendum-induced slump.

The civil engineering sector also grew last month and helped push the Markit/Cips UK construction purchasing managers’ index (PMI) to 52.3, up from 49.2 in August and the first increase in activity since March.

The rise marked a sharp turnaround from a three-and-a-half-year low in June and a seven-year low in July induced by panicky property developers spooked by the prospect of Britain leaving the European Union.

Only commercial building continued to slide as international investors remained wary of office and shop construction in London and south-east England, which has driven most of the sector’s expansion over recent years.

Tim Moore, a senior economist at financial data firm IHS Markit, said the better than expected news about the economy’s resilience following the Brexit vote had helped the construction industry regain confidence.



The announcement at the Conservative party conference in Birmingham of £5bn of funding for housebuilding is likely to bolster that confident outlook.

He said: “Resilient housing market conditions and a renewed upturn in civil engineering activity helped to drive an overall improvement in construction output volumes for the first time since the EU referendum. A number of survey respondents noted that Brexit-related anxiety has receded among clients, although it remained a factor behind the ongoing decline in commercial building work.”

He added that construction firms appeared to be optimistic about the next few months “with confidence linked to the fastest rise in new orders since March and a more upbeat economic news flow in general”.

However, Moore warned that the rebound still left the sector “on a much weaker growth trajectory than seen at the start of 2016, which contrasts with the export-led surge in manufacturing production during September”.

He said: “Not only are UK construction companies feeling the impact of subdued investment spending relative to earlier this year, but the weak pound has contributed to a sharp acceleration in cost inflation. There were again widespread reports that domestic suppliers had acted quickly to pass on higher imported raw material costs, despite softer demand conditions in recent months.”

Earlier this week, the communities secretary, Sajid Javid, attacked “nimbyism” for restricting the number of new homes as he unveiled “unprecedented” plans to “open up the market” with what he described as the largest state-backed housing programme since the 1970s.

He told the Tory conference that the Treasury would borrow £2bn to support an “accelerated construction” scheme, which aims to get houses built on publicly-owned “brownfield” land, and kickstart a £3bn home building fund to provide loans to build more than 25,000 homes by 2020.

Samuel Tombs, UK economist at Pantheon Macroeconomics, was unimpressed by the promise of extra loans to the housing sector, saying the initiatives only reversed planned cuts by the Treasury.

He said: “Promises of new money to facilitate construction on public sector land from the chancellor and the pick-up in the construction PMI have fostered optimism that the sector’s downturn is over.

“We remained concerned, however, that the construction sector will suffer from a prolonged dearth of business investment and will continue to be constrained by skill shortages.”