Construction Output Downturn Eases in July

Output levels fell again in the UK construction sector in July, but at the slowest pace since March.

This contributed to a sustained rebound in business activity expectations for the year ahead. Supply chain performance meanwhile improved and input price inflation eased to a five-month low.

At 44.7 in July, up from 38.4 in June, the seasonally adjusted S&P Global UK Construction Purchasing Managers’ Index™ (PMI^®) – an index tracking changes in total industry activity – reached its highest level for four months and remained below the neutral 50.0 threshold.

Reduced volumes of business activity have been recorded since January 2025, which is the longest continuous period of decline since the global financial crisis. Much slower rates of contraction were seen in all three main sub-sectors in July.

Commercial

Commercial work (index at 46.8) showed the greatest resilience, while civil engineering activity again saw the steepest pace of decline (38.3).

Residential

Meanwhile, house building activity decreased at the least marked pace since October 2025 (index at 41.8).

New Orders

Total new business received by construction companies fell at the slowest pace for 10 months in July.

Some firms commented on a recent turnaround in tender opportunities, including for commercial development, residential projects and transport infrastructure work. However, many survey respondents also noted that heightened geopolitical uncertainty and subdued domestic economic conditions continued to weigh on customer demand.

Employment

Mirroring the trends seen for business activity and new work, latest data highlighted a softer reduction in employment numbers across the construction sector. The rate of job losses was the slowest since February.

Anecdotal evidence cited the non-replacement of voluntary leavers in response to a lack of new work. At the same time, subcontractor availability improved to the greatest extent since April 2025.

Materials

July data revealed a sustained decline in purchasing activity, albeit the least marked since September 2025. Softer demand for construction products and materials, alongside fewer reported instances of transportation delays, contributed to an improvement in supplier performance for the first time in five months.

Input Prices

Meanwhile input price inflation eased further from May’s near four-year high. Although still sharp, the latest increase in average cost burdens was the slowest since February. Companies reporting higher purchasing costs typically linked this to fuel surcharges and rising prices paid for raw materials.

Outlook

Business activity expectations for the year ahead remained positive in July, with around 38% predicting an expansion and only 17% anticipating a decline. This signalled the strongest degree of optimism since February. Survey respondents noted hopes of a rebound in domestic economic conditions and signs of an improved near-term outlook for customer demand, particularly in relation to infrastructure work.

COMMENT

Tim Moore, Economics Director at S&P Global

Tim Moore, Economics Director at S&P Global Market Intelligence, said: “July data suggests that the performance of UK construction sector has started to stabilise after a sharp downturn throughout the second quarter of 2026. Business activity levels continued to decline in all three main categories, but in each case the rate of contraction was much slower than in June. This was supported by the weakest reduction in new business intakes since September 2025.

“Survey respondents commented on signs of a turnaround in client demand and a revival in new tender opportunities in some cases, despite subdued underlying market conditions. This contributed to more upbeat business activity expectations for the year ahead, with confidence levels the highest since February.

“A renewed improvement in supplier performance and softer input cost inflation were also positive developments in July. Construction companies widely commented on fuel surcharges and higher raw material prices due to the war in the Middle East, but the overall rate of cost inflation was the lowest for five months.”

INDUSTRY COMMENT

More Confident

Joe Sullivan, Partner at MHA

Joe Sullivan, Partner at MHA, commented: “July’s construction PMI suggests the pace of contraction is easing but activity still remains well below the 50 threshold. The sector continues to be hampered by procurement delays, project timing issues and uncertainty over funding.

“The short-term picture remains difficult, particularly in infrastructure, where too many projects are still stuck between announcement, tender and contract award. But the longer-term pipeline is more encouraging. Demand linked to energy and utilities, grid capacity, data centres and defence remains strong, and infrastructure will need to do much of the heavy lifting if construction is to return to growth.

“Greater political and funding certainty could help unlock schemes that have been held back. Planning reform may help over time, but the sector needs more than incremental change. The challenge is not a lack of policy direction, but the pace at which investment turns into contracts, mobilisation and activity on site.

“Housing remains under pressure, hit by affordability constraints, planning delays and fragile buyer confidence. Commercial activity is arguably the least weak part of the market, supported by industrial and logistics related investments, with hopes that conditions will start to stabilise in the coming months.

“The Budget will be a key moment. Until there is greater clarity on funding, clients and contractors are likely to remain cautious about committing to major schemes.

“Cost pressure is also sharpening the focus on value for money. Rescoping or redesigning schemes can delay procurement further, while fixed-price contracts remain a hard sell for contractors unwilling to absorb higher risk and thinner margins.

“Overall, the near-term outlook for the sector remains weak but survey respondents are feeling more confident than they have in previous months. If funding clarity improves and procurement delays ease, infrastructure could still provide the momentum needed for a broader recovery.”

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