Worrying Underlying Trends

_{A decrease in repair and maintenance drove the decline in construction}

UK construction output has continued to shrink as companies struggle to build at the pace required by the government’s far-reaching housing goals.

Output fell 0.3 per cent month on month in August, according to the Office for National Statistics (ONS), with the most pronounced decline in repair and maintenance.

“The underlying trends in construction are worrying,” Anna Leach, chief economist at the Institute of Directors, said.

“The sector is already contending with acute skills shortages, rising costs and long delays at the Building Safety Regulator.

“Added uncertainty over potential housing tax changes in the forthcoming Budget is further weighing on housing demand,” Leach added.

The latest Purchasing Managers Index (PMI) from S&P Global earlier this month revealed that construction output has been falling for nine months in a row, signalling a “solid rate of contraction”.

The report said business activity expectations were “subdued” at the second-lowest since December 2022 with some shred of optimism offset by “concerns about the UK economic outlook”.

Steven Mulholland, chief executive of the Construction Plant Hire Association (CPA), pointed to the fact that construction accounted for 15.2 per cent of all insolvencies in July 2025, the highest of any sector.

“With very few exceptions, when it comes to construction, infrastructure and housing, everything’s on a downward spiral,” Mulholland told City AM. 

“[The industry] is feeling it now… jobs are finishing and new ones are not starting. We’ve got a real problem,” he added.

Construction ‘key to growth’

Building more houses has been front and centre of the Labour government’s economic plans, with concerns that the UK’s housing crisis is stifling growth and consumer confidence.

“Unlocking infrastructure and housing delivery is critical to the UK’s growth future,” Leach said.

She added that the upcoming Budget – likely to be a tax-raising one – must “tackle systemic barriers head-on – accelerating planning reform, strengthening skills support, alleviating cost pressures and delivering long-term stability for the industry.”

Mulholland said: “Our industry urgently needs pro-construction measures in next month’s Budget.

“Rising employer and energy costs combined with a lack of investment incentives are stalling activity and putting Labour’s target of 1.5 million new homes at real risk.

“If Labour wants to deliver growth… it must back the businesses that build them – reversing harmful National Insurance and inheritance tax changes, as well as tackling increasing energy costs, so construction SMEs and the wider supply chains vital for growth can invest, hire and get building.”

Source: City AM