Key Takeaways
- UK Construction PMI rose to 46.1 in September, exceeding the estimated 44.9 and marking the least severe downturn in eight months.
- ECB Governing Council member Olli Rehn stated there are no indications of second-round inflation impacts, suggesting that wage growth and price-setting remain anchored.
- European Commission President Ursula von der Leyen issued a sharp rebuke to Germany, cautioning against dramatic cuts to the EU’s next seven-year budget.
- Commercial construction showed the most resilience in the UK with an index of 48.5, while housing activity remained the weakest link at 40.7.
- High long-term interest rates are acting as a "circuit breaker," according to Rehn, helping to dampen the pass-through of energy shocks to the broader economy.
UK Construction Sector Shows Signs of Stabilization
The British construction industry recorded its slowest decline since January 2025, as the S&P Global UK Construction PMI climbed to 46.1 in September. While the figure remains below the 50.0 threshold that separates contraction from growth, the result significantly outperformed analyst expectations of 44.9.
The improvement was driven by a moderation in the downturn across all three major sub-sectors. Commercial construction ([48.5]) approached stabilization, marking its best performance since May 2025, while the sharp slump in residential housing ([40.7]) eased slightly compared to previous months.
Despite the headline improvement, the report highlighted underlying vulnerabilities. Total new orders fell at the sharpest pace in three months, and business optimism hit a four-month low as firms cited geopolitical tensions and elevated borrowing costs as primary deterrents for major project decisions.
ECB's Rehn Downplays Inflation Spiral Risks
European Central Bank (ECB) policymaker Olli Rehn provided a dovish signal to markets on Tuesday, noting that the euro zone has yet to see "second-round impacts" from recent energy price spikes. Rehn emphasized that wage settlements and domestic price-setting have not yet entered the self-reinforcing spiral that would necessitate more aggressive monetary tightening.
Rehn observed that the current labor market lacks the extreme tightness seen in 2022, which has helped keep inflation expectations anchored. He further argued that the recent rise in long-term bond yields is effectively doing some of the central bank's work by slowing growth and reducing the pass-through of energy costs to other goods and services.
Market participants are closely watching these comments as the ECB balances a headline inflation rate approaching 4% against signs of a cooling economy. Traders currently price in roughly an 80% chance of another rate hike by December, though Rehn’s focus on the lack of second-round effects may suggest a "higher-for-longer" approach rather than further immediate increases.
Budget Tensions Rise in Brussels
In a significant political development, European Commission President Ursula von der Leyen used a speech at the European Parliament to warn against substantial cuts to the EU’s 2028–2034 Multiannual Financial Framework (MFF). Her comments were a direct response to Germany and other "frugal" northern nations calling for spending reductions of hundreds of billions of euros.
Von der Leyen argued that slashing the budget would jeopardize critical priorities, including energy autonomy and defense innovation. The Commission’s current proposal stands at 1.26% of the EU's gross national income, a figure that Berlin has signaled is too high given domestic fiscal constraints.
The budget battle highlights a growing rift between Northern Europe and a coalition of 17 Southern and Eastern European countries that are fighting to preserve subsidies for farmers and regional development. EU leaders are aiming to reach a preliminary agreement by the end of the year to avoid delays ahead of the 2027 election cycle.
Ed Liston is a senior contributing editor at TheStockMarketWatch.com. An active market watcher and investor, Ed guides an independent team of experienced analysts and writes for multiple stock trader publications.