UK construction activity falls at fastest pace in five years

(Sharecast News) - UK construction activity fell in July at the fastest pace in over five years amid a fresh drop in residential building, according to a survey released on Wednesday. The S&P Global construction purchasing managers' index declined to 44.3 from 48.8 in June, remaining below the 50.0 mark that separates contraction from expansion. Economists were expecting the index to be unchanged.

Firms mentioned site delays, lower volumes of incoming new business and weaker customer confidence. Some respondents also cited lower work undertaken on public sector projects.

Of the three monitored types of construction work, civil engineering saw the sharpest drop in July.

Joe Hayes, principal economist at S&P Global Market Intelligence, said: "Having trended upwards in recent months, our survey data for July signal a fresh setback for the UK construction sector, with total industry activity falling at the sharpest rate since May 2020. Dissecting the latest contraction, we can see a fresh and sharp drop in residential building, as well as an accelerated fall in work carried out on civil engineering projects.

"Forward-looking indicators from the survey imply that UK constructors are preparing for challenging times ahead. They're buying less materials and reducing the number of workers on the payroll. Expectations also continue to underwhelm, despite a modest pick-up in confidence from June's two-and-a-half-year low.

"Anecdotally, companies reported a lack of tender opportunities and a hesitancy from customers to commit to projects. Broader themes of uncertainty, both domestically but also internationally, will do little to reignite investment appetites."

Matt Swannell, chief economic advisor to the EY ITEM Club, said: "Official estimates of construction output, which have increased across the year-to-date, don't tally with the weak PMI readings seen so far across the course of 2025. What looks to be a string of pessimistic PMI readings should be taken with a pinch of salt, as they appear to reflect the shift in business sentiment following the changes in employer National Insurance Contributions (NICs) and the international trading environment.

"However, the sector will still face a challenging outlook. Uncertainty will linger, leading to the delay or cancellation of some construction projects, and businesses will continue to face a difficult operating environment as labour costs remain high due to ongoing labour shortages, as well as higher NICs and National Living Wage. The outlook for housebuilding in particular is mixed as the effects of planning reforms are counter-balanced by elevated construction costs and labour market shortages

"Even if business surveys are overall too pessimistic, it is clear the UK economy lost momentum in the middle of 2025, and growth can be expected to be muted for the rest of this year and into next. Despite the recent trade agreement, higher US tariffs will leave the UK with reduced access to a key export market, while domestic demand will be restrained by ongoing fiscal tightening and some mortgagors reaching the end of fixed terms and re-financing onto higher rates."