Construction Optimism at its Lowest Since 2022

Business activity falls for eighth month in a row, but at slower pace than in July

Solid reductions in new work and employment Optimism drops to its lowest since December 2022

S&P Global PMI^® survey data pointed to a decline in total industry activity for the eighth successive month, 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.

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.

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COMMENTS:

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.”

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.”

Jordan Smith, Regional Director at Thomas & Adamson, part of Egis Group, said:

“Although August’s PMI reading shows a slightly slower pace of decline than July’s five-year low, the construction sector continues to contract rather than grow, meaning it is a challenging market for everyone to navigate through. Reductions in housing and civil engineering sectors continue to be experienced; however, commercial projects have offered some resilience as we have seen first-hand as we are actively engaged on a number of commercial and workplace schemes.

“With the Bank of England’s interest rate being cut to 4% in August, the cost of borrowing is at the lowest level for more than two years, so there is cause for optimism that signs of movement could be on the horizon as the cost of finance becomes slightly more attractive to developers. This all helps with viability of potential projects, together with other positive emerging signs such as steadying of purchase prices and shorter lead times for materials, which we hope to see sustained as activity picks up towards the end of 2025.

“Whilst the data also notes a freeze on new hires, this is not necessarily the case across the board. Thomas & Adamson and the wider Egis Group are committed to recruiting and developing the next generation of talent within our businesses, and have several new hires on the horizon.

“The Scottish Government has this week announced a fresh commitment to invest £4.9bn in new homes over the next four years. This should hopefully create new momentum north of the border, and be reflected in the data seen throughout the remainder of the year.”