Sharpest Pace of Job Shedding Since 2020 New Figures Show

THE FASTEST reduction in job numbers since October 2020 came from a sustained business activity downturn, pressure on margins from sharply rising input costs, and a drop in new orders in UK construction companies.

These are the latest findings from the S&P Global UK Construction Purchasing Managers’ Index™ (PMI^®).

The PMI posted 46.4 in March, up from a 57-month low of 44.6 in February but still well below the neutral 50.0 threshold.

Lower volumes of construction output have now been recorded for three consecutive months and the latest reading indicated a solid pace of contraction.

Civil engineering (index at 38.8) was the weakest-performing area of activity in March. The sharp decline in output levels was attributed to delayed decision-making on new projects and a generally subdued pipeline of major infrastructure work. The rate of contraction accelerated to its fastest since October 2020.

Residential construction activity declined at a slower pace than in February, but the respective seasonally adjusted index was still well inside negative territory (44.7). Survey respondents typically commented on weak demand conditions, although some suggested that easing borrowing costs had helped to support confidence.

Commercial building (47.4) deceased only moderately in March. That said, the rate of contraction was the fastest since January 2021. Lower business activity was linked to lacklustre UK economic prospects and the impact of rising geopolitical uncertainty on clients’ investment spending.

Sluggish demand conditions contributed to another marked deterioration in construction order books. Lower levels of incoming new work have been recorded throughout 2025 to date. Construction companies often noted a lack of sales enquiries and greater competition for new work.

Lower workloads, elevated interest rates and worries about the broader economic outlook continued to weigh on business activity expectations in March. Confidence across the construction sector slipped to its lowest since October 2023.

Some firms nonetheless noted positive sentiment regarding the outlook for demand across the renewable energy sector and hopes of a turnaround in infrastructure workloads.

Job Shedding

Mirroring the trends for output and new work, latest survey data indicated a reduction in staffing numbers for the third consecutive month. The rate of job shedding was the steepest since October 2020.

Subcontractor usage also decreased at a solid pace in March, while construction companies reported further cutbacks to their input buying in response to lower workloads.

Finally, higher payroll costs due to forthcoming rises in National Insurance contributions and the National Minimum Wage continued to push up average cost burdens. The overall rate of input price inflation accelerated to its strongest since January 2023.

COMMENT

Tim Moore, Economics Director at S&P Global

Tim Moore, Economics Director at S&P Global Market Intelligence, said: “March data highlighted a challenging month for UK construction companies as sharply reduced order volumes continued to weigh on overall workloads.

“Civil engineering experienced the biggest setback as activity decreased to the greatest extent since October 2020. Survey respondents commented on subdued sales pipelines and a subsequent lack of infrastructure work to replace completed projects.

“Commercial work also saw a headwind from delayed decision-making on major projects, largely due to worries about the impact of rising global economic uncertainty. The downturn in residential construction activity nonetheless eased since February, providing a source of encouragement despite ongoing reports of sluggish demand conditions.

“Construction companies remained cautious about their year ahead growth prospects, as fewer sales conversions and a third successive monthly reduction in total new work hit confidence levels. Overall business optimism slipped to its lowest since October 2023.

“A lack of new projects, alongside pressure on margins from rising payroll costs, led to hiring freezes and the non-replacement of departing staff in March. The net result was the fastest pace of job shedding across the construction sector for nearly four-and-a-half years.”

INDUSTRY RESPONSE

Better Things to Come

Terry Woodley, MD of Development Finance at Shawbrook,

Terry Woodley, MD of Development Finance at Shawbrook, commented: “Spring showers have dampened construction sector activity, following the slow start to 2025. This is likely due to wider concerns surrounding the UK economy which has discouraged developers from pursuing new projects until sentiment improves.

“However, the OBR’s recent prediction that housebuilding will reach a 40-year high is a sign that better things are hopefully coming. In a similar vein, Shawbrook’s recent research found that 64% of property developers expect there to be an increase in housebuilding over the next 12 months, indicating that we may be in for a strong second half of the year.”

Emergency Brake on Hiring

Gareth Belsham, Director of Bloom Building Consultancy

Gareth Belsham, Director of Bloom Building Consultancy, commented: “There’s only one thing worse than this snapshot of declining industry sentiment – the fact that it was captured before Donald Trump’s ‘Liberation Day’ announcement.

“While the direct impact of US tariffs on UK construction will be modest, their chilling effect on business sentiment is real. Boards worrying about a possible recession later this year need a very good reason to sign off on a big capital investment right now.

“The March PMI survey found that confidence among contractors had slipped to its lowest level in 18 months, and that output was contracting across the board.

“While commercial property work has been holding up well, new orders have been in short supply in both infrastructure construction and housebuilding.

“The shortage of skilled workers has been driving up wages for months, and the combination of this cost pressure with the slowdown in demand has led some building firms to apply the emergency brake when it comes to hiring. Headline figures that show the rate of job shedding has climbed to levels not seen since the depths of the pandemic make for uncomfortable reading.

“There are a few rays of light though. April’s increases to the national minimum wage and employer National Insurance contributions will have a limited impact on many construction firms. With the majority of subcontractors being self-employed, main contractors rarely need to pay NI or hourly wages to site workers.

“And the darkening economic backdrop is likely to accelerate the pace of interest rate cuts through 2025, which will make it easier for developers to buy land and get building.”

Bumpy Year for Construction

Atul Kariya, Head of Construction at MHA

Atul Kariya, Head of Construction and Real Estate at MHA, comments: “We are seeing from the market and our clients that the result of the high tax burden for businesses combining with onerous regulation is disincentivising construction companies from investing in new staff and new projects.

“With the cost of employing staff kicking in from 1 April, it is no surprise that we’re seeing stagnant growth and declining confidence in the construction sector. Given construction is a leading indicator for the wider economy this does not bode well for the UK economic outlook for 2025.

“The Chancellor runs the risks of stifling corporate tax and employment receipts at a time when the government is more reliant than ever on business footing the bill for balancing the Treasury’s books.

“The situation has been compounded by the challenges associated with Gateway 2 approvals that are running behind. Significant upfront costs and the system working slower than intended have delayed many projects in the sector. Even when the backlog clears, there is a concern that if it doesn’t do so at a steady rate, we could see temporary spikes in demand leading to labour shortages and wage inflation.

“Yet, there remains hope for construction businesses robust enough to withstand these fierce storms. In a global economy increasingly threatened by an all-out trade war, UK construction could emerge relatively unharmed with less complex supply chains than manufacturers and retail. Although they are not immune from concerns that tariffs will slow global growth and hit consumer confidence.

“Demand is likely to remain too, as residential construction activity experienced a less sharp decline than in February. Although the removal of the UK stamp duty reduction on 1 April will stagnate the housing market over the summer, investment in housebuilding was a large part of the Chancellor’s Spring Statement. And, while civil engineering experienced a sharp decline this month, government infrastructure projects should provide a boost to the struggling sector, even if the private sector is not.

“2025 will continue to be bumpy year for the construction sector, but the outlook for 2026 and 2027 with growing order books and increasing optimism looks promising.”

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