Construction Output Decline Slows in May

THE CONSTRUCTION output decline showed signs of easing in May 2025.

Output and new orders both fell at the slowest pace since January, while growth projections for the year ahead improved again. Employment remained a weak spot, with job shedding accelerating to its fastest since August 2020.

The headline S&P Global UK Construction Purchasing Managers’ Index™ (PMI) – a seasonally adjusted index tracking changes in total industry activity – posted 47.9 in May, up from 46.6 in April, to signal the slowest reduction in output volumes since January.

Decline Slows in May

Lower business activity has been recorded throughout 2025 to date, but the latest fall in May was more modest.

House building was the weakest-performing segment in May (index at 45.1). Moreover, the downturn in residential construction work accelerated since April amid ongoing reports of subdued demand conditions.

Civil engineering also decreased at a solid pace in May (45.9), which extended the current period of contraction to five months.

Meanwhile, commercial work (49.5) fell only marginally and the rate of decline was the slowest since the downturn began in January.

Total new work received by UK construction companies decreased to the least marked extent for four months in May. Survey respondents attributed reduced order intakes to delayed decision-making among clients and cutbacks to capital spending budgets.

May data indicated that construction firms remained reluctant to backfill vacancies amid a lack of new work to replace completed projects and pressure on margins from rising payroll costs. Employment numbers fell at the fastest pace for nearly five years. Moreover, subcontractor usage decreased to the greatest extent since May 2020.

Purchasing activity was reduced in response to lower workloads. Input buying has now fallen for six months running. This resulted in fewer pressures on supplier capacity and a subsequent improvement in delivery times during May. The latest improvement in vendor performance was the fastest since September 2024, despite persistent reports of international shipping delays. A strong rate of input price inflation continued in May.

COMMENT

Worst Has Passed

Tim Moore, Economics Director at S&P Global

Tim Moore, Economics Director at S&P Global Market Intelligence, said: “The construction sector continued to adjust to weaker order books in May, which led to sustained reductions in output, staff hiring and purchasing. However, the worst phase of spending cutbacks may have passed as total new work fell at a much slower pace than the near five-year record in February.

“Housing activity was the weakest-performing segment in May as demand remained constrained by elevated borrowing costs and subdued confidence. Commercial work was close to stabilisation after a marked decline in April, suggesting that fears about domestic economic prospects have abated after the initial shock of US tariff announcements.

“Output growth expectations across the UK construction sector recovered to the highest so far in 2025. Survey respondents mostly cited a general improvement in sales projections as well as a potential tailwind from falling interest rates over the year ahead.

“On the inflation front, stubbornly high input price pressures were recorded in May, although the overall rise in purchasing costs was the least marked for four months. Many firms noted that suppliers continued to pass through greater payroll costs.

“Rising wages, squeezed margins and subdued demand weighed on construction employment, despite a brighter outlook for business activity. Job shedding was the steepest since August 2020, while subcontractor usage decreased to the greatest extent for five years.”

Baby Steps

Gareth Belsham, Director at Bloom Building Consultancy

Gareth Belsham, Director of Bloom Building Consultancy, commented: “Few champagne corks will be popping at two months of slowing decline. But May’s modest improvement in the PMI data confirms that April’s bump was no blip. Some in the construction sector are now daring to hope that the worst is past.

“Certainly there’s a spring in the step of those focusing on commercial property. The PMI data confirms that commercial work is now the best-performing subsector, and on the project front-line we’re seeing some encouraging light at the end of the tunnel. In the past few weeks we’ve seen a number of commercial property investors who had paused at the ‘go / no’ point decide to press the button.

“Yet the progress is all relative… across the industry, sentiment is still finely balanced. 39% of the contractors surveyed predict that workloads will improve over the next 12 months. But an increase in the number of construction workers being laid off hardly speaks to an industry preparing for boom times.

“The official ONS data showed a big jump in the value of new orders placed in the first quarter of the year – up more than a quarter compared to Q4 2024 – and as these feed through into projects we will hopefully see these marginal improvements in the PMI data coalesce into genuine growth.

“These are baby steps – but they’re heading in the right direction.”

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