Construction output drops despite planning reforms
Construction activity in the UK has suffered a further decline and confidence is low despite Minister Angela Rayner's planning reforms getting approval from the Office for Budget Responsibility (OBR).
Rayner's Ministry of Housing is introducing broad changes to planning rules as it hopes to deliver the UK's construction sector an extra boost. Its planning reforms have also won the approval of the fiscal watchdog, which upgraded growth forecasts for 2026 and the years thereafter.
But optimism is yet to spread to construction firms, which have seen the fastest reduction in employment numbers in nearly five years, according to S&P Global's purchasing managers' Index. The PMI showed that activity has seen a downturn for the third month in a row as it posted a figure of 46.4 for March, below the 50-figure benchmark that indicates an overall increase in output compared to the previous month.
Confidence across the sector also fell to its lowest level since October 2023 as the UK's poor economic outlook has weighed down on business prospects. Civil engineering was the weakest sub-sector as the rate of contraction was at its fastest pace since October 2020. Economics director at S&P Global Tim Moore said construction at large was facing headwinds from delayed decisions on major projects.
He said: 'March data highlighted a challenging month for UK construction companies as sharply reduced order volumes continued to weigh on overall workloads.' Spiralling employment costs, exacerbated by Chancellor Rachel Reeves' £25bn national insurance tax raid, are also taking a hit on the sector.
'A lack of new projects, alongside pressure on margins from rising payroll costs, led to hiring freezes and the non-replacement of departing staff in March,' Moore said. 'The net result was the fastest pace of job shedding across the construction sector for nearly four-and-a-half years.' The government is relying on the sector to help it achieve its target of building 1.5m homes in the next four years. It has also made significant investments in national infrastructure projects central to its mission to deliver growth. But the latest data on construction will send a warning to government officials who are feeling buoyant after planning reforms have gained credibility.
In the Spring Statement, Reeves acknowledged that she will no longer be able to meet the government's manifesto pledge to build 1.5m homes by the end of this parliament, pointing to the OBR downgrading cumulative net additions to UK housing stock to 1.3m.
Nevertheless, Rayner's National Planning Policy Framework was the one bright spot in an otherwise bleak emergency Budget – with the OBR predicted planning reforms would yield 170,000 new homes, boosting growth by 0.2 per cent a year.
But the difficulty here is that at present the UK doesn't have the skilled workforce to build these homes. To solve this, Labour has worked with the Construction Industry Training Board (CITB) and the National House-Building Council (NHBC), who have invested £140m into developing the pipeline of construction workers. This will result in 32 'homebuilding skills hubs' to 'fast-track training to local areas that need more housing' and ultimately deliver 5,000 more construction apprentices a year.
Yet, there are two problems. Firstly, the hubs aren't scheduled to launch until 2028. Secondly, as the Construction Industry Training Board (CITB) chief executive, Tim Balcon, said: 'Under the government's homebuilding plans, up to an additional 152,000 workers will need to be found.' He added: 'And this doesn't include the quarter of a million additional construction workers we need to meet all forecasted construction demand through to 2028'. While admirable, 5,000 apprentices by the end of this parliament will not plug a vacancy gap of 402,000 workers, or deliver 1.3 to 1.5m homes.
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