UK construction firms cut back on homebuilding in October after being hit by pre-budget jitters, ending a nascent recovery in the sector, according to a closely watched survey.

S&P Global’s overall construction PMI dropped to 54.3 in October, a tumble from the 29-month high of 57.2 seen in September.

It was worse than the fall to 55.1 expected by economists, though it remained above the 50 threshold separating growth and contraction. The sector was mainly dragged down by housebuilders, which shrank for the first time in four months. 

The findings will be a concern for the new Labour government, which has promised to build 1.5 million homes in the current five-year parliamentary term in a bid to end Britain’s housing crisis. Housebuilding has performed sluggishly since Labour won power on July 4, with the PMI survey the latest sign that worries in the run-up to Chancellor Rachel Reeves’ first budget weighed on the economy.

Some of businesses’ fears were realised by Reeves last week after she saddled firms with the bulk of her £40 billion of tax rises. It led Britain’s richest man James Dyson to warn that the fiscal plans will lead to the “death of entrepreneurship” and hurt economic growth.

“Some construction companies reported delayed spending decisions ahead of the autumn budget,” said Tim Moore, economics director at S&P Global Market Intelligence. “Government policy uncertainty, fragile consumer confidence and elevated borrowing costs were all constraints on demand for housebuilding projects.”

S&P’s survey showed that growth in civil engineering and commercial work also eased last month, while construction firms were the least confident they have been in 2024 about their future output growth. Nonetheless new orders continued to grow and the rate of job creation picked up to a three-month high.