Construction Output Falls at Faster Pace Amid Sharp Drop in Housing Activity

There was a sustained downturn in business activity across the UK construction sector in August, led by weakness in the residential building segment.

The seasonally adjusted S&P Global UK Construction Purchasing Managers’ Index™ (PMI^®) – an index tracking changes in total industry activity – registered 44.3 in August, down from 44.7 in July and below the neutral 50.0 value for the twentieth successive month. Survey respondents often commented on subdued demand conditions and a reduction in new projects, especially house building starts.

Sharp Drop in Housing Activity

All three sub-sectors recorded a reduction in construction activity during August, but housing was the only category to register a faster pace of contraction than in July. Survey Moreover, the downturn in residential work (index at 37.6) was sharper than seen elsewhere in the construction sector. Commercial activity (47.8) fell at the slowest rate since January, while civil engineering activity (40.5) decreased to the least marked extent since March.

Construction companies signalled a fall in total new order intakes during August, but the rate of contraction was only modest and the slowest since September 2025. Anecdotal evidence often cited heightened risk aversion in the wake of the Middle East conflict and delayed decision-making by clients, but some firms noted improvements in infrastructure work.

A lack of new business to replace completed projects, alongside intense cost pressures, resulted in another reduction in employment numbers across the construction sector. However, the rate of job shedding was only modest and the smallest since February. At the same time, subcontractor usage increased for the first time in just under two years.

Purchasing activity fell sharply in August and at a faster pace than seen during the previous survey period. Softer demand helped to alleviate some pressure on supply chains, but delivery times were broadly stable overall. A number of survey respondents commented on longer international shipping times.

Higher fuel costs, transportation bills, and raw material prices were cited as contributing to another sharp increase in purchasing expenses during August. That said, the overall rate of input cost inflation moderated to its lowest for six months amid some reports of more competitive pricing among suppliers. Meanwhile, rates charged by subcontractors increased at the slowest pace since March.

Outlook

Construction companies were still upbeat on balance about the outlook for business activity during the year ahead, but the degree of positive sentiment eased from July’s five-month high. Around 38% of the survey panel anticipate an expansion of output, while 20% forecast a downturn. Anecdotal evidence suggested that subdued client confidence, uncertain domestic economic prospects and concerns about the Middle East conflict were the main factors weighing on optimism, although some noted hopes of a turnaround in tender opportunities (especially for commercial work).

COMMENT

Tim Moore, Economics Director at S&P Global

Tim Moore, Economics Director at S&P Global Market Intelligence, said: “UK construction companies experienced another solid reduction in output volumes, with a faster downturn in house building the main reason for a weaker overall performance during August. A sharp and accelerated drop in residential activity more than offset slower falls in the commercial and civil engineering sub-sectors.

“Sluggish demand conditions and low client confidence, combined with anxiety about the impact of the Middle East conflict, were again factors contributing to lower workloads across the construction sector. Total new business nonetheless decreased to the least marked extent for 11 months amid reports of support from transport infrastructure work and some pockets of vitality such as data centre roll outs and energy sector projects.

“Encouragingly, input price inflation eased to its lowest since February and supply chain performance was broadly stable. Softer overall inflation was recorded in August despite upward pressure on operating expenses from higher fuel bills, logistics costs and raw material prices.

“Business optimism was still subdued, as growth projections for the year ahead eased since July and were much weaker than historic trends. Concerns about geopolitical tensions, lacklustre domestic economic prospects and elevated borrowing costs were all noted as holding back confidence.”

INDUSTRY COMMMENT

Treading Water

Atul Kariya, Head of Construction at MHA

Atul Kariya, Head of Real Estate and Construction at MHA, commented: “Construction activity dropped again in August after signs of life in July and the overall picture remains weak. The PMI is still well below the 50 threshold and firmly in contraction territory, even if the pace of slowdown now looks less severe than earlier in the year. For now, the sector is doing little more than treading water.

“The fundamentals have not changed. Demand is weak, costs remain high, planning is still too slow, and confidence is being held back by uncertainty. A new government may bring fresh conversations on housebuilding and reform, but for house buyers and construction businesses it also means another period of wait-and-see, particularly ahead of the Budget.”

“Housing remains the clearest drag. Buyers are still being squeezed by affordability pressures and creeping tax burdens, while developers continue to face unnecessary planning restrictions that make it harder to get viable schemes moving. Recent proposals to fast-track homes near well-connected stations and give more weight to development in sustainable locations are a step in the right direction, but the test is delivery. The sector has heard plenty of promises before, but what it needs now is a planning system that turns consent into spades in the ground.

“There are pockets of opportunity, particularly around data centres and regeneration, but even these projects are running into familiar blockers including grid constraints, viability concerns and slow approvals. The issue is not a lack of ambition or demand for new space. It is the continued difficulty of turning investment intent into actual building.

“Until planning reform starts to unlock sites faster, and the Budget gives businesses reasons to invest rather than pause, construction is likely to remain subdued.”

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