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04 December 2025 | EY ITEM Club comments | Media contact: James White - Senior Executive, Media Relations, Ernst & Young LLP

Budget concerns overstate weakness in the construction sector

• November’s construction Purchasing Managers’ Index (PMI) points to a notable contraction for the sector. However, the survey’s pessimism appears overstated and largely reflects business uncertainty around the Autumn Budget, which hadn’t been announced at the time of the survey. With the eventual Budget tax rises at the lower end of expectations, a rebound in the PMI seems likely next month.
• Nonetheless, the construction sector’s outlook is mixed. Government investment and planning reforms will offer some support, but continued uncertainty around the domestic and international economy could see some large projects either cancelled or delayed.

Matt Swannell, Chief Economic Advisor to the EY ITEM Club, said: “November’s construction PMI fell sharply to 39.4, down from 44.1 in October. November’s reading was the weakest since the onset of the pandemic and activity was reported to have contracted in all major sub-sectors. Construction businesses pointed to fragile market confidence hampering demand with the Autumn Budget, which was announced after the survey was conducted, providing a significant source of uncertainty for the sector.

“November’s extremely weak PMI should be approached with a healthy degree of scepticism. Throughout most of the year, the PMI has been much more pessimistic than official estimates of construction sector activity, and in November, this negativity looks to have been magnified by expectations of tax rises at the Autumn Budget. Even before November’s significant fall, a flagging construction PMI has consistently remained in contractionary territory across 2025. But between January and September, the Office for National Statistics (ONS) estimated that construction sector output grew in six of the nine months, leaving activity more than 1% higher than at the end of last year. With the tax rises announced at the Budget towards the lower end of expectations, a significant rebound in the PMI next month seems likely, even if it remains below the 50 no change mark.

“However, with that said, the Autumn Budget didn’t seem to move the needle significantly for the construction sector and its outlook remains mixed. Public infrastructure projects and planning reforms will provide the sector with some support, but continued uncertainty around the UK’s economic outlook will see some private sector construction projects postponed or cancelled, while the availability of skilled labour and April’s confirmed 4.1% rise in the National Living Wage will likely continue to affect the viability of some construction developments.”

03 December 2025 | EY ITEM Club comments | Media contact: James White - Senior Executive, Media Relations, Ernst & Young LLP

PMI points to a steady but subdued economy

• Pre-Budget uncertainty likely weighed on business sentiment and affected November's UK Purchasing Managers’ Index (PMI). Growth will likely struggle to pick up given that fiscal policy is tightening, real income growth is weak, and some households still must refinance mortgages onto higher interest rates.
• The S&P Global survey suggested that inflationary pressures are receding. The EY ITEM Club continues to expect a December rate cut over the Bank of England waiting until the February meeting, but it’s likely to be a very close call.

Matt Swannell, Chief Economic Advisor to the EY ITEM Club, said: “The final S&P Global composite PMI pointed to a slowing economy in November, recording 51.2, down from 52.2 in October. The services sector drove the fall, with the PMI declining to 51.3 in November, down from 52.3 in October. The survey was conducted before the Autumn Budget and concerns around possible tax rises weighed on business sentiment. Respondents also cited a gloomy global economic outlook as a factor that weighed on new business. 

“There was another large revision to the flash reading, adding to questions about the credibility of the early release. The services PMI has also often been a misleading indicator of activity in the sector as it tends to be overly sensitive to business sentiment. With the Autumn Budget's tax rises at the lower end of expectations, an uptick in the December PMI can’t be ruled out, but there is good reason to think that the economy will find it difficult to gain momentum in the near-term. Fiscal policy will continue to tighten, real income growth will continue to slow, and some mortgages still need to be refinanced onto higher interest rates.

“Easing cost and price pressures along with a deteriorating growth outlook are paving the way for an interest rate cut before the Christmas break. Although interest rates were kept unchanged at the Bank of England's November meeting, the decision was finely balanced, and it was clear that a majority of the committee anticipated having to reduce interest rates further. They'll take confidence from respondents to the S&P Global survey reporting the weakest rise in prices in nearly five years, reinforcing the signal from the recent falls in inflation and pay growth. On balance, a rate cut at the December meeting appears slightly more likely than the Bank of England waiting until February, but it is expected to be a close call.”

02 December 2025 | EY ITEM Club comments | Media contact: James White - Senior Executive, Media Relations, Ernst & Young LLP

Housing market continues to tick along

• Nationwide’s house price gauge pointed to continued but modest growth in November. The housing market now looks to have stabilised, with the distortions of April’s Stamp Duty change fading. The council tax surcharge announced at the Autumn Budget appears unlikely to have a significant impact on the housing market.
• There doesn’t look to be much more space for mortgage rates to fall in the near-term and with significant improvements in housing affordability seemingly a thing of the past, a material increase in housing market demand looks unlikely. 

Matt Swannell, Chief Economic Advisor to the EY ITEM Club, said: “According to Nationwide estimates, house prices continued to rise at a modest pace in November, increasing by 0.3% on the back of a 0.2% pick up in October. Annual house price growth softened a little, slipping to 1.8% in November, down from 2.4% in October as last year’s unusually strong November reading dropped out of the calculation.

“The distortion from April’s stamp duty change has faded and housing demand has picked back up after some transactions were brought forward to beat the deadline. Mortgage lending and approvals recovered over the summer and have stabilised above the levels seen in the last couple of years. Changes to property taxes announced in the Autumn Budget are unlikely to have an immediate or material impact on the housing market. The high value council tax surcharge will not come into effect until April 2028 and will impact less than 1% of properties in England. 

“There appears to be little scope for the housing market to improve meaningfully from here and modest performance is expected over 2026. Even though the Bank of England left interest rates unchanged at its November meeting, financial markets continue to expect further interest rate cuts, so there is limited scope for new lending rates to fall in the near-term. While housing affordability has improved over the last couple of years, it remains stretched, and softer pay growth going forward means that the significant improvements in housing affordability are likely now behind us.” 

01 December 2025 | EY ITEM Club comments | Media contact: James White - Senior Executive, Media Relations, Ernst & Young LLP

 Mortgage market firms up after Stamp Duty change

• UK mortgage activity has stabilised at higher levels than those seen before stamp duty distortions took effect. However, a further increase in activity is unlikely, with little room for mortgage rates to fall and improvements in affordability in the rear-view mirror. 
• Consumer credit slowed again in October as repayments increased. Consumer demand and the outlook for credit are modest given slowing real income growth, tighter fiscal policy, and the prospect of higher mortgage rates for some households. 

Matt Swannell, Chief Economic Advisor to the EY ITEM Club, said: “Mortgage approvals were 65,018 in October, down slightly from 65,647 in September. However, activity in the mortgage market is running at levels above those seen before stamp duty distortions kicked in. Although net secured lending slowed to £4.3bn in October, falling from £5.2bn in September, lending flows are also well above the average of the past couple of years. 

“Although the Bank of England kept Bank Rate unchanged at its November meeting, financial markets continue to expect further interest rate cuts, but two and five-year swap rates are little changed over the month, so there isn't much room for a fall in quoted mortgage rates in the near-term. Meanwhile, slowing pay growth means that the gains in housing affordability are now in the rear-view mirror. As a result, housing market and mortgage activity are likely to stabilise at current levels rather than continuing to rise. 

“Net unsecured lending slowed for the second consecutive month, falling to £1.1bn in October, down from £1.4bn in September. Consumer spending and credit demand are both expected to remain modest as real income growth slows, fiscal policy tightens, and some households refinance mortgages onto higher interest rates. 

“The softness is matched in the manufacturing sector. Though today's S&P Global manufacturing Purchasing Managers’ Index (PMI) recorded 50.2, up from 49.7 in October, this was barely in expansionary territory. While the PMI is a relatively unreliable predictor of month-to-month moves in the sector's performance, weak demand in both domestic and overseas markets continue to prove a challenge for manufacturers.”

26 November 2025 | EY ITEM Club comments | Media contact: James White - Senior Executive, Media Relations, Ernst & Young LLP

Fiscal credibility will be hard won - EY ITEM Club comments

• Tax rises announced in the Budget have put the UK’s public finances on a more sustainable footing. Revisions to the OBR’s forecast did not leave the Chancellor facing the fiscal hole that was widely anticipated. But she decided to bank the good news and increase the wiggle room left against the Government’s fiscal rules.
• Nonetheless, some risks remain. The UK’s tax and spending plans are now based on more plausible looking growth forecasts. But the impact of a patchwork of small tax rises is more uncertain and carries a greater risk that revenue expectations are disappointed. While headroom remains a little slimmer than historical standards.
• Today’s announcements will do little to change the UK’s near-term growth outlook.

Matt Swannell, Chief Economic Advisor to the EY ITEM Club, said: “The Labour Government’s second Budget has set out a plan to keep the UK’s public’s finances on a more sustainable footing. By increasing the headroom against its primary fiscal target to £22bn, the Government’s strategy has become less vulnerable to the day-to-day moves in the economy and financial markets, while its tax and spending plans are based on OBR growth forecasts which now look more plausible. Following a period of over-optimism around the UK’s productivity prospects, the OBR has downgraded its long-term GDP growth forecast to 1.5%, which is much closer to our expectation.

“However, fiscal credibility will remain hard won. Although the Chancellor faced a much smaller fiscal hole than many anticipated, she still opted to raise tax revenues. Freezes to income tax thresholds combined with a patchwork of multiple small tax rises have helped to build back some fiscal headroom, but that is not without some risk. A little under half of the new revenue comes from these smaller tax changes and is much harder to accurately estimate than the effect of more sweeping changes to measures like income tax would have been. Therefore, the Autumn Budget carries some possibility that eventual revenues may disappoint the OBR’s expectations.

“While the fiscal situation now looks more stable, this Budget might not be the end of the story. The Chancellor has increased her fiscal headroom to a little below previous averages, but a level of uncertainty lingers around the impact of some of the Budget’s tax rises, which is exacerbated by the recent volatility of the UK and global economies. The OBR estimates that there is a 59% chance that the Government’s primary fiscal rule will be met.

“Today’s announcements will do little to change the UK’s near-term growth outlook. The additional tax revenue raised in this Budget will build slowly over the next five years.  Additional welfare spending will come online more quickly, but the small increase in borrowing compared to the Spring Statement is unlikely to have a significant impact on the growth outlook for 2026 or 2027.” 

21 November 2025 | EY ITEM Club comments | Media contact: James White - Senior Executive, Media Relations, Ernst & Young LLP

Pre-Budget concerns weigh on the PMI

• Pre-Budget concerns have contributed to a downbeat UK Purchasing Managers’ Index (PMI), so November's fall should be taken with a pinch of salt. Nonetheless, the outlook remains modest with tighter fiscal policy, weak real income growth, and some mortgages still to be re-fixed at a higher interest rate all headwinds to growth. 
• A weak growth outlook combined with a deteriorating jobs market and falling inflationary pressures keep a December interest rate cut on track. 

Matt Swannell, Chief Economic Advisor to the EY ITEM Club, said: “Taken at face value, the fall in November's PMI to 50.5, down from 52.2 in October, points to a stalling economy. The loss of momentum was most evident in the services sector, where the PMI slipped to 50.5 in November, down from 52.3 last month. Respondents to the survey reported that pre-Budget uncertainty amongst customers had seen some spending decisions postponed, causing a drop off in incoming business. 

“However, the PMIs should be taken with a pinch of salt. In recent times, the PMIs have been sensitive to business sentiment rather than true changes in activity, while the flash estimate has been prone to significant revisions. While some of the weakness in this month's reading is almost certainly down to business concerns around tax rises at the Budget, private sector momentum is modest at best, and it is expected to continue that way over the next few quarters. Consumers and businesses will still have to overcome tighter fiscal policy, weak real income growth, and some mortgages being refinanced to higher interest rates.  

“A weak growth outlook combined with easing price pressures are increasing the likelihood of a pre-Christmas rate cut. The S&P Global survey reported the weakest reading for output price inflation for nearly five years. At its November meeting, a finely balanced Monetary Policy Committee (MPC) swayed towards keeping interest rates on hold. However, signs of easing inflationary pressures, a loosening labour market and a subdued growth outlook all point towards a rate cut in December.”

21 November 2025 | EY ITEM Club comments | Media contact: James White - Senior Executive, Media Relations, Ernst & Young LLP

October’s fall in retail sales shouldn’t be a source of concern

• UK retail sales volumes fell sharply in October, but this looks like payback after four consecutive substantial rises. Other indicators of consumer spending have mostly been much softer, so today's outturn reduces that gap.
• The outlook for the sector is one of sluggish growth. Real income growth is set to cool, as softening pay growth, high inflation, tighter fiscal policy and the lagged passthrough of past interest rate rises for some mortgagors take a toll. Even if consumers shed some of their caution, spending growth is likely to be subdued.

Matt Swannell, Chief Economic Advisor to the EY ITEM Club, said: “Retail sales volumes fell 1.1% month-on-month in October, but this followed solid rises in the previous four months, and October's decline appears to be payback for that earlier strength. A partial correction in non-food and non-store spending was always likely in October, after a string of unsustainably strong outturns. However, the decline was broad-based, with all of the major categories seeing sales fall.

“Today's weaker outturn reduces the gap between the retail sales series and other consumer indicators, which have been much softer, and with October likely to have seen a rebound in industrial output following the temporary effect on manufacturing activity from the cyber-attack on a major automotive manufacturer in September, there appears to be a good chance that month-on-month GDP growth rose during the month.

“The consumer outlook is likely subdued, with the retail sector expected to see modest spending growth over the next year. Real household income growth is likely to continue cooling, reflecting softening pay growth, high inflation, tighter fiscal policy, and a significant minority of mortgagors refinancing at much higher interest rates. However, survey evidence suggests households are slowly growing more confident, so there's scope for consumers to mitigate the impact of these headwinds by saving less and spending more.”

21 November 2025 | EY ITEM Club comments | Media contact: James White - Senior Executive, Media Relations, Ernst & Young LLP

Precarious public finances make for a difficult Budget

• A challenging first seven months of the fiscal year will leave the Government having to borrow more than anticipated in the Spring Statement to meet this year's day-to-day spending plans. 
• Today's data comes too late to affect next week's Budget. If it is to stick to its fiscal rules, the Government will have to tighten policy significantly. It needs to recover some fiscal space after welfare policy reversals, higher market interest rates, and a weaker growth outlook will have more than used up the slim headroom left at the Spring Statement. 

Matt Swannell, Chief Economic Advisor to the EY ITEM Club, said: “October's data underscored the challenges facing the Government ahead of the Autumn Budget. Its primary fiscal rule is to balance the current budget by 2029-2030, but it's been a difficult first half of 2025-2026, with the current deficit consistently exceeding the Office for Budget Responsibility's (OBR) Spring Statement projection. October's £12.6bn deficit only adds to the Government's challenges, outstripping the Spring Statement forecast of £10bn. Across the fiscal year so far, the current budget is in deficit by £83.9bn, much larger than the £68.8bn anticipated by the OBR in March.

“Today's numbers come too late to be included in the Autumn Budget. If the Government is to meet its commitment to keep the public finances on a stable footing, it will have to tighten policy significantly, with tax rises likely to do most of the work. Welfare policy reversals and higher market interest rates have used up the tiny margin for error the Government left against its fiscal rules. Meanwhile, a long overdue downward revision to the OBR's optimistic growth forecast will reduce expected tax revenues. With day-to-day spending totals already looking challenging, tax rises will likely be the only way the Government can make up the lost ground and give itself a little more breathing space against its fiscal rules.”