Activity in the UK’s construction industry is contracting at the fastest rate since the coronavirus pandemic in 2020 as high costs and tax hikes bite.
The sector is vital for the Labour government’s plans for a house building boom and improvements in infrastructure, with the private sector expected to help boost the UK’s economic growth.
But S&P Global’s latest purchasing managers’ index (PMI) release suggests construction is suffering from a drop in residential building and civil engineering projects.
The survey of around 150 companies showed another contraction in output as the PMI reading dropped from 48.8 in June to 44.3 last month. Anything over 50 signals expansion, while anything below signals contraction.
Firms said site delays, lower volumes of business orders and weaker consumer confidence had dampened activity.
Respondents also said there was less work being undertaken on public sector projects, which is a worrying sign for Labour given its commitment to build railways, motorways and power plants.
Construction to get support
S&P Global said expectations for the next year were below long-term averages, in signs the bleakness surrounding UK economic prospects was weighing on businesses.
Layoffs and recruitment freezes also saw payroll numbers continue to drop for the seventh consecutive month, though the decline in headcount was softer than in previous months.
Pantheon Macroeconomics’ Elliott Jordan-Doak said the small rise in S&P Global’s employment index was a “bright spot” while the moderation of input price pressures also likely to be welcomed by bosses.
“All told, the drop in the construction PMI introduces downside risks for our call of quarter-to-quarter GDP growth in the third quarter of 0.2 per cent,” Jordan-Doak said.
“We still think the fundamentals point to sentiment in the construction sector gradually improving in the coming months.
“The Bank of England will likely cut interest rates in August, reducing borrowing costs for businesses, and the shock from tariff-uncertainty will continue to fade.
“Moreover, the government’s focus on investment spending and planning reforms should also provide support to the construction industry.
“The PMI should recover over the coming months.”
