UK Construction Activity Falls at Sharpest Rate in Over Five Years

THERE WAS A considerable slump in the UK construction sector at the start of the third quarter as total industry activity levels fell at the steepest pace since May 2020.

The latest S&P Global PMI survey data marked decreases in volumes of work carried out across housing, commercial work and civil engineering, but a considerable drag came from a fresh drop in residential building.

Posting 44.3 in July, down from 48.8 in June, the headline S&P Global UK Construction Purchasing Managers’ Index™ (PMI) – a seasonally adjusted index tracking changes in total industry activity – signalled the sharpest contraction in over five years.

Slump in UK Construction Activity

Where a reduction in activity was reported (around 29% of the survey panel), firms mentioned site delays, lower volumes of incoming new business and weaker customer confidence. Some respondents also cited lower work undertaken on public sector projects. Notably, of the three monitored types of construction work, civil engineering saw the sharpest drop during July. The headline PMI was also pulled lower by a renewed decline in residential building activity. As for commercial construction, a marked but softer fall was registered.

UK constructors remained challenged by subdued demand conditions. The volume of new incoming work declined for a seventh month running in July, with the pace of contraction at its most pronounced since February. A drop in tender opportunities was cited by panellists.

Looking ahead to the next 12 months, surveyed companies were optimistic of growth in activity on balance, but expectations were weak when compared with their long-run trend. This was despite business confidence ticking up slightly from June’s two-and-a-half-year low. Concerns surrounding the broader economic outlook weighed on company growth projections.

The volume of construction materials purchased by surveyed firms subsequently declined in July, although the fall was the softest seen since the start of 2025. When it came to the receipt of purchases, the latest PMI data revealed delays from vendors. This marked the first time in six months that delivery times have lengthened.

That said, UK constructors reported higher charges from their suppliers at the start of the third quarter. This underpinned a sharp monthly rise in their operating expenses. However, the overall rate of inflation was the weakest since January.

The downward trend in payroll numbers continued into July, extending the current period of falling employment to seven months. Lay-offs, recruitment freezes and the non-replacement of leavers were seen in panellists’ anecdotal replies to the questionnaire.

UK constructors also pared back their usage of subcontractors, but their rates charged nevertheless rose at a sharp pace, in line with the trend seen since late last year.

COMMENT

Joe Hayes, Principal Economist at S&P Global

Joe Hayes, Principal Economist at S&P Global Market Intelligence, said: “Having trended upwards in recent months, our survey data for July signal a fresh setback for the UK construction sector, with total industry activity falling at the sharpest rate since May 2020. Dissecting the latest contraction, we can see a fresh and sharp drop in residential building, as well as an accelerated fall in work carried out on civil engineering projects.

“Forward-looking indicators from the survey imply that UK constructors are preparing for challenging times ahead. They’re buying less materials and reducing the number of workers on the payroll. Expectations also continue to underwhelm, despite a modest pick-up in confidence from June’s two-and-a-half-year low.

“Anecdotally, companies reported a lack of tender opportunities and a hesitancy from customers to commit to projects. Broader themes of uncertainty, both domestically but also internationally, will do little to reignite investment appetites.”

INDUSTRY COMMENT

Tough to Swallow

Gareth Belsham, Director of Bloom Building Consultancy

Gareth Belsham, Director of Bloom Building Consultancy, commented: “There’s no sugarcoating it – this data will be tough to swallow for almost everyone in construction.

“Housebuilding, the sector beloved of politicians in need of a photo opp, declined badly.

“To make matters worse, the pipeline of new work is drying up fast. It’s little wonder contractor confidence is weak and many construction firms are laying off payrolled staff.

“June saw sentiment plunge to its lowest level since December 2022, and while July’s figure improved marginally, even the most optimistic of builders will find it hard to see the glass as half full.

“Tomorrow the Bank of England is widely expected to cut its base rate for the third time this year, and the prospect of cheaper finance will be welcomed by developers who are struggling to square their finance costs with weak demand for their end product.

“The one bright spot is commercial sector construction. While it too saw output fall in July, at least more commercial schemes are being greenlit. Those that do are laser-focused on value and have a fully costed business case – there is minimal margin for error.”

Construction Continues to Suffer

Terry Woodley, MD of Development Finance at Shawbrook

Terry Woodley, MD of Development Finance at Shawbrook, said: “The construction industry continues to suffer as activity fell for the seventh time in a row in July. Even residential work – the usual pillar of the industry – is struggling to sustain activity numbers. We’re seeing a drop in confidence affect industries across the board, however, labour shortages and economic uncertainty all play a role in tampering the pipeline of work needed to get businesses up and running again.

“This is not lost on the government, though, which is promising. The new £39 billion Social and Affordable Homes Programme announced at Reeve’s Spending Review is just one example of injecting funds into the construction industry to ensure it continues to be a viable and beneficial source of economic growth. Developers have proven to be agile in tough conditions, and should remain cool-headed through these difficult times, especially with the rest of H2 to look forward to.”

Alarm Bells Should be Ringing

Brian Berry, Chief Executive of the FMB

Brian Berry, Chief Executive of the FMB added: “The sharp downturn in construction activity undermines the government’s stated ambition to deliver 1.5 million new homes and upgrade a further five million homes. Positive government policy reforms to speed up the planning system, introduce greater borrowing flexibility, and upskill the workforce are failing to unlock the much‑needed momentum to drive economic growth. Delivery is key which is why July’s plunge should be setting alarm bells ringing across both industry and government.

“To get Britain building again consumers need greater confidence in the economy. Small building companies are very reliant on consumer confidence which is why the prospect of further tax increases is such a concern. The proposed planning reforms announced in May need to be given absolute priority with a focus on fast‑track approvals for sites of up to nine houses to help small building companies deliver the homes Britain needs.”

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