THERE WAS a decline in total construction activity for the eighth successive month in August, led by marked reductions in the housing and civil engineering segments.
At the same time, business activity projections for the year ahead were the least upbeat since December 2022.
The headline S&P Global UK Construction Purchasing Managers’ Index™ (PMI®) – a seasonally adjusted index tracking changes in total industry activity – registered 45.5 in August, up from 44.3 in July (which was the lowest reading for just over five years). However, the index was still well below the neutral 50.0 value and indicative of another solid decline in overall construction output.
Sustained Downturn
August data indicated that a slower reduction in commercial building (index at 47.8) helped to offset steeper declines in residential (44.2) and civil engineering activity (38.1). The latest reduction in output across the house building category was the sharpest since February.
Civil engineering was the weakest-performing segment in August, with business activity decreasing at the fastest pace since October 2020. Survey respondents again commented on a lack of new projects to replace completed work.
Total new orders across the construction sector decreased for the eighth month running in August, although the rate of decline eased to the least marked since January. Construction companies widely commented on challenging market conditions, intense price competition and headwinds from sluggish UK economic activity.
Lower volumes of output and incoming new work led to hiring freezes and the non-replacement of departing staff in August. Employment numbers have fallen throughout 2025 to date and the latest reduction was the fastest since May. A number of firms commented on efforts to mitigate rising payroll costs by cutting back on recruitment. Subcontractor usage also decreased markedly in August and at one of the fastest rates seen over the past five years.
A lack of forthcoming project starts led to a solid reduction in purchasing activity across the construction sector. The latest decline in input buying was the sharpest for three months.
Subdued demand for construction products and materials led to shorter wait times for supplier deliveries in August.
Purchasing prices increased at the slowest pace since October 2024, despite ongoing reports of suppliers seeking to pass on higher wages and transportation costs. Adding to signs of easing cost inflation, latest data indicated the slowest rise in subcontractor charges for six months.
Weakening Optimism
Finally, the latest survey data highlighted a renewed weakening in business optimism across the construction sector. Around 34% of the survey panel predict a rise in output during the year ahead, while 22% forecast a reduction. This pointed to the lowest degree of confidence since December 2022.
Construction companies reported subdued market conditions, elevated business uncertainty and risk aversion among clients. That said, lower borrowing costs and the prospect of rising infrastructure work were cited as positive factors.
COMMENT
Tim Moore, Economics Director at S&P Global Market Intelligence, said: “Construction activity has decreased throughout the year to-date, which is the longest continuous downturn since early-2020. August data signalled only a partial easing in the speed of decline after output fell at the fastest pace for over five years in July.
“Sharply reduced levels of housing and civil engineering activity were again the main reasons for a weak overall construction sector performance. Commercial work showed some resilience in August, with the downturn the least marked for three months.
“There were some positive signals on the supply side as vendors’ delivery times shortened, subcontractor availability improved and purchasing price inflation hit a ten-month low. However, easing supply conditions mostly reflected subdued demand and a lack of new projects.
“Elevated business uncertainty and worries about broader prospects for the UK economy meant that construction sector optimism weakened in August. The proportion of panel members expecting a rise in output over the year ahead was 34%, down from 37% in July and lower than at any time since December 2022.”
INDUSTRY COMMENT
From Bad to Worse
Gareth Belsham, Director of Bloom Building Consultancy, commented: “Things have gone from bad to worse for housebuilders, with residential construction output falling at its fastest rate since February.
“The rate of decline is more modest in commercial building construction, but this one bright note can’t mask the overall slowing in the industry.
“Official data from the ONS ranked construction as the fastest growing sector of the economy in the second quarter of 2025, but the PMI data suggests momentum is patchy at best.
“Most worrying of all is the slowing pipeline of new work. New orders have fallen for eight months in a row, and while contractors tend to book projects months in advance, even big names are starting to see their order books thinning out.
“Little wonder contractor sentiment is weak and many construction firms are either laying off payrolled staff or freezing recruitment. While some of this can be attributed to the increase in employer National Insurance contributions introduced earlier this year, the use of subcontractors also fell sharply in August.
“None of this speaks to an industry full of confidence. Just a third of the contractors interviewed for the PMI survey expect output to improve over the next year – a lower proportion than at any time since December 2022.
“Yet there are a few glimmers of hope. Last month’s reduction in the Bank of England base rate should bring some relief to contractors grappling with high levels of debt, and make finance more affordable for developers.
“And while Deputy Prime Minister Angela Rayner’s plan to get 1.5 million new homes built by 2029 is likely to join Whitehall’s growing list of Quixotic housebuilding targets, the stability of the commercial construction sector is welcome. Commercial schemes with a clear business case and robust costings are still being approved, but developers and investors are cautious, and value is key.”
Climate of Policy Uncertainty
Joe Sullivan, Partner at MHA, said: “The pace of decline in the construction sector eased slightly in August; however, the PMI remains below 50, highlighting a continued slowdown in activity and investment in the face of a climate of policy uncertainty and increased financial pressures.
“The ongoing rumours of a new SDLT and a ‘mansion tax’ are creating a significant drag on the property market. This policy uncertainty is already stalling investment across the UK. Further speculation over a national property tax, changes to CGT and IHT, and a potential new NI charge on rental income are causing would-be investors to delay decisions and are already impacting transaction volumes. The Autumn Budget being delayed until 26 November is therefore unhelpful. There is also an indirect potential hit to construction volumes as potential changes to pension taxation could reduce investment in property funds.
“The current tax system, particularly Stamp Duty, is a structural drag on the market. It discourages both up-sizers and down-sizers, creating a lack of mobility that is bad for everyone. By disincentivising people from moving, it not only reduces transaction volumes but ultimately lowers overall tax receipts.
“While major infrastructure projects like the Lower Thames Crossing remain a positive driver, the overall outlook for the property market is being suppressed by a combination of policy uncertainty and heavy taxation. Commercial building was the only relative bright spot however, housing and civil engineering activity struggle to gain momentum.”
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