The UK construction sector remains in decline during July, but the pace of contraction slows to its weakest level for four months.
The seasonally adjusted S&P Global UK Construction Purchasing Managers’ Index rises from 38.4 in June to 44.7 in July.
Despite the improvement, the index remains below the neutral 50 mark separating growth from contraction.
Construction output has now declined continuously since January 2025, representing the longest sustained downturn since the global financial crisis.
COMMERCIAL WORK SHOWS GREATEST RESILIENCE
All three principal construction categories record slower reductions in activity during July.
Commercial construction performs most strongly with an index reading of 46.8, while civil engineering records the sharpest fall at 38.3.
Housebuilding activity reaches 41.8, representing its slowest rate of decline since October 2025.
New orders fall at the weakest pace for 10 months as some firms report improving tender opportunities across commercial development, residential schemes and transport infrastructure.
However, subdued domestic economic conditions and geopolitical uncertainty continue to weigh on client demand.
BUSINESS CONFIDENCE IMPROVES
Expectations for construction activity over the coming year rise to their highest level for five months.
Employment continues to fall, although the rate of job losses is the slowest since February. Some businesses respond to weaker workloads by not replacing employees who leave voluntarily.
Subcontractor availability improves to its greatest extent since April 2025, while purchasing activity records its smallest decline since September last year.
Input cost inflation also eases to a five-month low and supplier performance improves.
SIGNS OF STABILISATION
Tim Moore, economics director at S&P Global Market Intelligence, says: “July data suggests that the performance of UK construction sector has started to stabilise after a sharp downturn throughout the second quarter of 2026.
“Business activity levels continued to decline in all three main categories, but in each case the rate of contraction was much slower than in June. This was supported by the weakest reduction in new business intakes since September 2025.
“Survey respondents commented on signs of a turnaround in client demand and a revival in new tender opportunities in some cases, despite subdued underlying market conditions. This contributed to more upbeat business activity expectations for the year ahead, with confidence levels the highest since February.
“A renewed improvement in supplier performance and softer input cost inflation were also positive developments in July. Construction companies widely commented on fuel surcharges and higher raw material prices due to the war in the Middle East, but the overall rate of cost inflation was the lowest for five months.”
ONGOING HEADWINDS
Terry Woodley (main picture), managing director, development finance at Shawbrook, says: “A fall in construction output – marking the slowest downturn since March – across the latest S&P Construction PMI data highlights ongoing headwinds facing an industry striving to build momentum.
“All three main categories of construction recorded a slower drop in business activity, marking the slowest downturn in construction output for four months, likely due to higher borrowing costs and business uncertainty.
“The Government’s plans to deliver 1.5 million new homes over the course of this parliament will require sustained investment across the sector to overcome these softer construction figures.”
“Access to flexible and reliable funding becomes even more essential.”
And he adds: “While this new data points to a temporary setback, continued efforts, such as recent local planning and development reforms by Andy Burnham, demonstrate that the policy driver for addressing the housing demand remains strong.
“As developers navigate these tighter conditions to keep existing projects on track and continue progressing new schemes, access to flexible and reliable funding becomes even more essential.”
INDUSTRY REACTION
Maria Harris, chair of the OPDA, says: “While the construction PMI provides an important measure of the health of the housebuilding sector, it’s also a reminder that increasing the supply of homes is only part of the solution. We also need to ensure people can buy and sell those homes more quickly, confidently and with fewer unnecessary delays.
“Too many transactions still take months to complete, with buyers and sellers facing uncertainty at every stage. That not only creates stress and increases the risk of sales falling through, it also reduces confidence across the entire housing market. Developers are less willing to build if transactions are slow and unpredictable, while buyers become more cautious if they fear delays or unexpected costs.
“Modernising the homebuying process through better upfront information, greater use of digital data and a more transparent transaction process would help improve certainty for everyone involved. If we want a housing market that supports growth, mobility and new housing supply, we need to look beyond how many homes we build and focus on how efficiently they move through the system.”
“Deep structural issues in the property market remain.”
Richard Pike, sales and marketing director at Phoebus Software, says: “There are some positive signs in the latest UK construction PMI that the downturn is starting to stabilise with output at its highest levels for four months. However, the sector remains in contraction, with housebuilding continuing to underperform the wider construction sector.
Unfortunately, deep structural issues in the property market remain. Affordability pressures and economic uncertainty mean many prospective buyers are delaying moves. Developers, in turn, are reluctant to bring forward new sites when demand remains uncertain. The result is constrained housing supply, which helps keep prices elevated and limits any meaningful improvement in affordability. It’s a self-perpetuating cycle. Buyers are waiting for confidence to return, while developers are waiting for buyers to return.
“Breaking that deadlock requires stable economic conditions, a clear and consistent housing strategy, planning reform and a more efficient homebuying process. This will give buyers, lenders, and developers the certainty they need to invest and transact with confidence.
“Until confidence returns across the housing market, construction activity is likely to remain subdued, and any recovery is likely to be very slow and gradual.”
“Tension in the Middle East also continues to hamper the sector.”
Kelly Boorman, national head of construction at RSM UK, says: “While it’s encouraging to see the PMI on the rise again this month, and sentiment is improving, uncertainty remains among construction firms and housebuilders around how existing infrastructure will support new plans for devolved spending.
“Tension in the Middle East also continues to hamper the sector, as pipelines continue to shrink and oil prices rise again.
“The Treasury’s announcement yesterday of £9 billion borrowing will stimulate construction activity, but this is a fraction of what is required to adequately support infrastructure and major project delivery over coming years. Further injection in funding and more certainty in where spend will be committed will aid sentiment, but with a realisation on the ground that mobilisation is likely to take 2-3 years under the current procurement and planning regime.
“As a result, further construction firm and sub-contractor administrations are likely on the horizon. Many UK infrastructure projects have also been shelved, which has impacted pipelines.
“Housebuilders need clarity around how funding for housing will be deployed, and how current barriers around planning, design and procurement can be overcome. Funding is of course welcome, but this alone won’t necessarily resolve some of the challenges the construction sector currently faces.”
“The lack of new housing and other building activity is a drag on broader productivity growth.”
Thomas Pugh, chief economist at RSM UK adds: “The construction sector seems to have remained in the doldrums this summer, despite the good weather. Output has barely risen since 2017, and has slumped further over the last nine months. The increase in the PMI in July suggests the situation improved a little last month, but at 44.7, it’s pointing to subdued activity in the sector.
“Not only is this a mechanical drag on GDP growth, as the construction sector accounts for about 6% of the economy, but the lack of new housing and other building activity is a drag on broader productivity growth.
“The good news is that the recent fall back in oil prices should help ease input cost pressures, which are pushing up the cost of building and will make it less likely that interest rates will rise, which should support demand. What’s more, the promised surge in investment from the Burnham government could provide another boost to demand, if adequate funding and support is put in place.”
