UK Construction Output Fall Slows in September

SEPTEMBER data indicated that the downturn in construction activity moderated again and was the least marked since June. This was helped by a slower reduction in new work.

However, construction companies remain cautious about the outlook, with business optimism little-changed from August’s 32-month low.

At 46.2 in September, up from 45.5 in August, the headline S&P Global UK Construction Purchasing Managers’ Index – a seasonally adjusted index tracking changes in total industry activity – reached its highest level for three months.

However, the latest reading was below the neutral 50.0 value for the ninth consecutive month and still signalled a solid rate of contraction.

Output Fall Slows

The slower reduction in overall construction activity in September was helped by a weaker fall in residential building work (index at 46.8).

Civil engineering (42.9) was the weakest performing segment, although activity also decreased at a softer pace than in August.

Commercial construction (46.4) was the only sub-sector to register a faster rate of decline in September. A lack of new project starts was again the main factor holding back construction output.

September data indicated that order books deteriorated for the ninth month in a row, albeit only marginally and at the slowest pace over this period. Survey respondents often noted that subdued demand, elevated business uncertainty and general hesitancy among clients had made it difficult to convert sales opportunities. Some firms nonetheless commented on new business wins related to energy projects.

Employment Numbers

Mirroring the trend for new work, latest data indicated a reduction in employment numbers for the ninth consecutive month. Construction companies cited ongoing hiring freezes and the non-replacement of departing staff in response to fewer workloads, although some reported a rise in the recruitment of apprentices.

Supply conditions improved again in September, albeit at only a modest pace. Shorter lead times for the delivery of purchased items was linked to reduced pressure on vendor capacity.

Reflecting this, construction firms recorded another solid decline in input buying in September, which extended the current period of contraction to 10 months. A strong increase in purchasing prices was recorded during September.

Although faster than in August, the rate of cost inflation remained softer than seen on average in the first half of 2025. Where rising input prices were reported, survey respondents noted the impact of elevated pay pressures, alongside increased energy, raw material and transport costs.

Subdued Expectations

Business activity expectations for the year ahead meanwhile remained subdued, with confidence levels broadly unchanged since August and the second-lowest since December 2022. Some construction companies reported hopes of a boost from infrastructure spending, energy sector demand, lower interest rates and planning approvals (including the need for improvements to the Building Safety Act approvals system). However, this was offset by concerns about the UK economic outlook, cutbacks to capital expenditure plans and reports of uncertainty among clients ahead of the Autumn Budget.

Caution Amongst Clients

Tim Moore, Economics Director at IHS Markit

Tim Moore, Economics Director at S&P Global Market Intelligence, said: “September data suggested that the UK construction sector faced pressure on multiple fronts as residential, commercial and civil engineering work all continued to decrease at solid rates.

“Lower volumes of overall construction output have been recorded since January, although the latest reduction was the slowest for three months and the downturn in new orders was the softest so far in 2025.

“Business activity expectations for the year ahead were among the lowest since the end of 2022, suggesting that construction companies remained cautious about the near-term outlook and have yet to see a turning point on the horizon.

“Some firms hope for a boost from lower borrowing costs and noted new sales pipelines in areas such as energy security markets and infrastructure projects. However, many survey respondents reported caution among clients ahead of the Autumn Budget and a general reluctance to commit to major capital expenditure projects against a subdued domestic economic backdrop.

“Weak business optimism, shrinking workloads and robust cost pressures once again led to lower employment numbers across the construction sector. Lower staffing levels have now been recorded for nine months in a row, which is the longest period of job shedding since the pandemic.”

INDUSTRY COMMENT

Attention on Autumn Budget

Terry Woodley, MD of Development Finance at Shawbrook

Terry Woodley, MD of Development Finance at Shawbrook, commented: “Construction activity has fallen for the ninth consecutive month, with lack of new projects having the most negative impact on the data. While there are ways to go before developers can breathe a sigh of relief due to factors like recruitment, it seems businesses have eased into the issues that triggered the sharp drop in July like rising costs and macroeconomic factors.

“These concerns may be short-lived, however. The Government has reiterated its commitment to get Britain building, and the announcement of new towns across the UK will offer significant development opportunities, which will require external support to speed up infrastructure projects held up by red tape. The recent Labour conference also demonstrated that building is integral to the country’s economic health, for jobs, investment and more. Attention will now begin to turn to the upcoming Autumn Budget in the hope that it gives developers more reason for confidence, especially as we ease into off-season for the sector and activity falls.”

Gateway 2 Delays

Atul Kariya, Head of Construction at MHA

Atul Kariya, head of real estate and construction at MHA, said: “The slight uptick in construction PMI is positive news but activity still remains firmly in contraction territory. The uncertainty surrounding the Budget and the continued delays in Gateway 2 approvals are compounding the challenges that the sector is facing.

“Undeniably, fire safety is paramount, but the current approach to Gateway 2 and 3 approvals is unduly complex and slow. It is disproportionately impacting the commencement of inner-city schemes where housing demand is highest. At a time when the industry could do without any delays to project starts, could the Gateway 2 approval process be made easier and more risk-based towards fire safety elements rather than across the entire scheme.

“The announcements earlier this year around accelerated planning reform and new towns has come as welcome news, but there is a level of skepticism across the sector. They’ve heard promises from the government before without the necessary delivery. The industry cannot afford to wait for a potential uptick in activity until sometime in the middle of next year. The Chancellor must use the upcoming Budget to introduce immediate, practical stimulus for housebuilders. The recent announcements in Ireland provide a good blueprint.”

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