Fastest Downturn in UK Construction Output since May 2020

FEBRUARY PMI data highlighted another fall in UK construction output, with the speed of decline accelerating considerably since the start of 2025.

At 44.6 in February, down from 48.1 in January, the headline S&P Global UK Construction Purchasing Managers’ Index™ (PMI) – a seasonally adjusted index tracking changes in total industry activity – registered below the neutral 50.0 threshold for the second month running.

The latest reading was also the lowest for nearly five years and signalled a steep decline in total construction activity.

Downturn in UK Construction Output

Residential building (index at 39.3) decreased for the fifth month in a row and was the weakest-performing area of construction activity in February. Aside from the pandemic, the rate of decline was the fastest since early-2009.

Survey respondents often cited weak demand conditions, headwinds from elevated borrowing costs and a lack of new work to replace completed projects.

Civil engineering activity (39.5) also registered a steep decline in February. The respective seasonally adjusted index was the lowest since October 2020. Commercial construction (49.0) displayed a degree of resilience, with output levels falling only marginally and at a similar pace to that seen in the previous survey period.

February data pointed to worsening demand conditions across the construction sector. New order intakes decreased sharply and to the greatest extent since May 2020.

Survey respondents noted delayed decision-making among clients, reflecting squeezed budgets and concerns about the economic outlook. Some firms also noted the impact of cutbacks to business investment spending plans.

Construction companies indicated a reduction in their staffing numbers for the second consecutive month. Although only modest, the pace of job shedding was the sharpest recorded since November 2020. Lower workforce numbers were typically linked to the non-replacement of voluntary leavers in response to cost constraints and fewer new project starts.

This also led to the steepest fall in sub-contractor usage since May 2020.

Input buying decreased for the third month in a row during February. Weaker demand for construction products and materials contributed to an improvement in overall supplier performance for the first time since October 2024.

That said, a number of firms continued to report delays at ports and longer wait times for international shipping. Inflationary pressures intensified, as signalled by the sharpest rise in average cost burdens for nearly two years. Around 38% of the survey panel indicated a rise in their input prices, while only 3% noted a reduction. Higher prices paid for raw materials, energy, transportation and wages were reported.

Business activity expectations meanwhile remained positive overall in February, despite a steep decline in order books and concerns about a lack of new tender opportunities. Around 39% of survey respondents forecast an upturn in output during the year ahead, compared to 17% that forecast a decline.

That said, the resulting index signalled a much lower degree of optimism than seen on average in 2024. Hopes of an improvement in underlying market conditions and lower borrowing costs helped to support confidence, while subdued consumer spending and risk aversion among clients were cited as factors holding back optimism.

COMMENTARY

Tim Moore, S&P Global Economics Director

Tim Moore, Economics Director at S&P Global Market Intelligence, said: “Sharply declining order books rippled through the UK construction sector in February, which led to accelerated reductions in output volumes, employment and input buying. Weak demand conditions were attributed to entrenched caution among clients, against a backdrop of subdued consumer confidence and lacklustre economic performance.

“Aside from the pandemic, total industry activity decreased at the steepest pace since December 2019. This was led by considerable reductions in residential building and civil engineering work, while a degree of resilience was reported for commercial construction activity. Survey respondents widely cited a lack of new work in the house building segment, due to soft market conditions and the impact of elevated borrowing costs.

“Construction companies remain optimistic overall about their growth prospects for the next 12 months, albeit less so than on average in 2024 amid increasing concerns about the broader UK economic outlook. The were also signs that rising payroll costs and purchasing prices have become a source of anxiety, with the latest increase in overall business expenses the steepest since March 2023.”

More Investment Required

Atul Kariya, MHA Head of Construction & Real Estate

Atul Kariya, Head of Construction and Real Estate at MHA, said: “Following the dramatic decline in construction activity last month, another fall in the PMI data to 44.6 is hardly surprising given that the economic fundamentals have not significantly changed. This is the sharpest fall since December 2019 and the second month in a row that activity has dipped below 50.0.

“The construction sector continues to face global headwinds and multiple cost pressures. The industry has battled through in a post-Brexit, post pandemic environment; however, the high corporation tax rate in comparison to other markets and the increase in employment taxes are not a great recipe for creating long term economic growth or stimulating investment into construction.

“Starmer’s announcement on housebuilding is positive news, but as today’s data shows, residential building has fallen for the fifth month in a row. While the infrastructure sector remained relatively resilient compared to residential and civil engineering, activity levels still remain below 50. More investment is required to sustain any type of recovery.

“The Spring statement is an opportune time for the government to look at the UK economic environment and potentially consider some revisions to their fiscal plans. The UK must create the right environment to provide confidence to investors and construction companies.”

Alarming Trend

Brian Berry, FMB Chief Executive

Brian Berry, Chief Executive of the FMB, commented: “Today’s figures only confirm the alarming trend which builders across the UK have been experiencing for months. We’re seeing construction output falling at its fastest rate in almost five years, at the heart of the pandemic, and with input cost inflation also rising fast, already fragile market confidence is likely to take yet another hit. This echoes the FMB’s State of Trade Survey for Q4 2024 which found workloads, enquiries and employment numbers were all down, and that materials costs are rising fast.

“With New Work down sharply, particularly in the house building segment, the Government needs to take urgent action to reassure builders and consumers if they are serious about meeting their targets. Urgent steps are needed to diversify the housing market, and give SME builders the opportunity to step up and build the homes on the smaller sites which the major volume housebuilders can’t reach. We need to see greater resource given to local authority planning departments to support the small builders who stand ready to deliver the homes we need.”

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