The UK construction sector showed a slight easing in its rate of decline in March but mounting supply chain pressures and rising costs are casting a long shadow over the outlook.
The latest S&P Global/CIPS Construction PMI rose to 45.6 in March, up from 44.5 in February, signalling a slower contraction – but one that remains firmly in negative territory.
While civil engineering activity improved to 44.8 from 41.0, housebuilding continues to struggle, remaining below the 40 mark for a fifth consecutive month, underlining ongoing weakness in residential development.
The figures come at a time of heightened global uncertainty, with disruption to energy markets and supply chains feeding directly into construction costs and delaying project pipelines.
TANGIBLE DELAYS
Industry sentiment is increasingly being shaped by concerns over material availability and price volatility, with developers and contractors showing growing reluctance to commit to new schemes or fixed-price contracts.
This is beginning to translate into tangible delays, with projects being paused or reassessed as investors revisit viability in a higher-cost environment.
The data also points to a wider slowdown in housing-led activity, with rising mortgage rates and reduced product availability hitting demand and weakening confidence across the development pipeline.
SIGNIFICANT HEADWINDS
Nick Cattini (main picture, inset), specialist construction and infrastructure partner at RSM UK, says: “Today’s figures show slowed contraction within UK construction, as the sector grapples with significant headwinds against a weak economic backdrop. Uncertainty across global energy and fuel markets has fed directly into input costs and transport expenses.
“Industry surveys and cost data indicate that energy, fuel and materials continue to experience upward pressure through early 2026, reinforcing caution among developers and contractors alike.
“Concerns over the longer-term availability and security of materials are weighing on sentiment across construction businesses.
“Disruptions to global supply chains, combined with energy-intensive material production and constrained logistical routes have reduced a willingness amongst contractors to commit to fixed-price or near-term starts. As a result, we are seeing delays to project starts, with some investors taking longer to reevaluate scheme viability.”
BLEAK OUTLOOK
And he adds: “Any green shoots the UK’s housing market saw as we headed into early Spring have been curtailed, with sharp increases to base rates and hundreds of mortgage products being pulled from the market almost overnight.
“Where reduced inflation and anticipated base rate cuts had lay grounds for cautious optimism across the sector heading into 2026, the outlook now paints a much bleaker picture.
“Whilst there is little immediate encouragement, the UK construction sector has a track record of resilience through volatile cycles. A commitment to major long-term investment in defence, energy and water from government may go some way to mitigating the declines in confidence, while the longer-term impact of the conflict on the sector remains to be seen.”
ELEVATED ENERGY COSTS
Thomas Pugh, chief economist at RSM UK, adds: “The ceasefire in Iran announced last night is unambiguously good news for the UK economy, reducing the chances of further sharp rises in energy prices and the need for interest rate hikes.
“However, energy and fuel prices will likely remain significantly higher than before the crisis for the rest of the year, keeping costs elevated. The jump in the input costs balance to 70.5 reflects the surge in fuel prices last month, which will still have to work its way through supply chains.
“Even though rate hikes may now be avoided, the 2-3 rate cuts that were priced into the market will now probably have to wait until 2027. This will keep the housing market subdued and squeeze business investment, including in construction projects.
“The slump in the employment index to 45.6 does not bode well for the wider labour market. Taken together with the weak employment balances in the other PMIs, it suggests the unemployment rate will climb higher in the first half of the year.
“What’s more, uncertainty will remain elevated, especially given the temporary nature of the ceasefire. This will further dampen appetite for significant investment projects, at least until there is a more permanent end to the conflict. Ultimately, the UK is still likely to face another bout of stagflation this year as elevated uncertainty, financing and energy costs dampen growth and boost inflation.”
SLUGGISH DEMAND
Richard Pike, chief sales and marketing officer at Phoebus Software, says: “The housebuilding sector has been in a negative state following a sharper than expected downturn in February, and the impact of the Iran conflict has only deepened the problems facing the sector.
“Higher oil prices are pushing up construction costs further, squeezing margins, while supply chain issues are slowing down projects. This comes at a time when demand is already sluggish, with weak order books and few new projects breaking ground.
“Housebuilders need confidence and certainty and that’s in short supply.”
“Like any sector, housebuilders need confidence and certainty and that’s in short supply. If the Middle East conflict can be resolved and supply chains normalise, the sector will start to recover, but we seem a long way from the 1.5 million new home target set by the Government.
“However, if the disruption persists, the sector faces a long and painful squeeze. The Government needs new homes to be built, but any kind of fiscal intervention is unrealistic in the current environment.
“What’s needed is clearer policy direction, planning reform and support for smaller developers. We also await the effect of the announcement of the seven new towns across England announced last month, and the speed that these projects can be delivered.”
