Construction Downturn Continues with Sharp Drop in Housing Activity

March data indicated a solid reduction in UK construction output, albeit at a slightly less marked pace than in the previous month.

Residential work remained by far the weakest-performing category. The latest survey also suggested that operating margins were under considerable pressure from a rapid acceleration in input cost inflation. Construction companies widely noted that the war in the Middle East had pushed up fuel, transportation and raw material prices.

The headline seasonally adjusted S&P Global UK Construction Purchasing Managers’ Index (PMI) – which tracks changes in total industry activity was 45.6 in March.

This was an increase from 44.5 in February but remained below the neutral 50.0 value for the 15^th month in a row.

Survey respondents generally cited falling confidence among clients and a lack of new project starts. However, resilient energy sector demand was reported in March. Some firms suggested that a return to typical weather conditions helped to moderate the overall downturn in construction output after delays due to unusually wet weather in February.

Sharp Drop in Housing Activity

Housebuilding activity (index at 38.2) again declined more quickly than civil engineering (44.8) and commercial construction (47.1). All three sub-categories recorded slower rates of contraction than in February. The latest fall in civil engineering activity was the least marked since May 2025, which some firms linked to a gradual turnaround in major infrastructure work.

Total new business decreased at the fastest pace for four months in March. Lower volumes of new work have been recorded in each month since January 2025, with the latest reduction attributed to rising risk aversion among clients in response to elevated global economic uncertainty. Many firms noted that the conflict in the Middle East had negatively impacted confidence among clients.

Construction companies recorded a faster decline in employment during March. There were also sharp cutbacks to subcontractor usage and purchasing activity in response to reduced workloads.

Longer Lead Times

March data pointed to a renewed downturn in supplier performance. Average lead times among vendors lengthened for the first time since July 2025 and to the greatest extent for 14 months.

Construction companies typically commented on longer international shipping times and tighter supplies of some raw materials (e.g. resins).

Nearly half of the survey panel (48%) reported an increase in their average cost burdens during March, while only 3% signalled a decline. The resulting seasonally adjusted Input Prices Index pointed to a rapid acceleration in cost inflation to its highest since November 2022.

Concerns about the inflation outlook, higher borrowing costs and the prospect of a protracted war in the Middle East all weighed on business activity expectations across the construction sector during March.

Although still upbeat overall, the latest data indicated that business optimism fell markedly since February to its lowest for three months.

COMMENT

Tim Moore, Economics Director at S&P Global

Tim Moore, Economics Director at S&P Global Market Intelligence, said: “UK construction companies indicated a sustained downturn in business activity during March, led by another steep reduction in residential work. A degree of resilience continued in the commercial and civil engineering segments. There were some reports of a turnaround in infrastructure work, especially in the energy sector.

“March data suggested a challenging near-term outlook for construction activity as total new orders decreased at one of the sharpest rates seen over the past six years. Survey respondents commented on fragile consumer confidence and delayed investment decisions in response to the outbreak of war in the Middle East.

“Construction firms also signalled a recalibration of their output growth forecasts for the year ahead. The drop in confidence during March wiped out the steady improvements in business optimism reported since the Autumn Budget. Escalating inflationary pressures, gloomy domestic economic prospects and higher borrowing costs were widely cited concerns in March.

“International shipping delays meant that supply chain performance deteriorated for the first time since last summer. Moreover, fuel surcharges and rising transport costs contributed to a surge in input cost inflation to its highest for more than three years. The month-on-month acceleration in cost inflation since February was the largest recorded in nearly three decades of data collection.”

INDUSTRY RESPONSE

Bumpy few months ahead

Joe Sullivan, partner at MHA

Joe Sullivan, Construction and Real Estate partner at MHA said, “The slight uptick in Construction PMI suggests the sector is steadying but not bouncing back. Any small improvement is likely due to reduced weather disruption. Overall, demand still looks weak and many projects are being pushed back rather than kicked off.

“The market is still split. Infrastructure is holding up better, while housebuilding remains the weakest sector and is most sensitive to interest rates hikes. Even if house prices are edging up, the outlook is still uncertain, higher energy costs and changes in mortgage rates can quickly hit confidence and affordability.

“Cost and delivery risks are also rising again. The inevitable increase in cost of materials due to the war in the Middle East, the rise of minimum wage and labour pressures are squeezing margins, especially on fixed price contracts. At the same time, extra regulation and longer waits between planning approval and starting on site are slowing activity and making firms more careful about investing.

“Looking ahead, we expect a bumpy few months. On some projects, especially larger commercial ones, the numbers are tight, build costs are much higher and funding may become harder to secure. That means more redesign, value engineering and phased delivery. A sustained lift will depend on stronger new orders and steadier expectations for interest rates and input costs.”

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