The UK construction sector has entered the third quarter of 2025 with a stark downturn, marking the sharpest contraction in activity since May 2020, according to the latest S&P Global UK Construction Purchasing Managers’ Index™ (PMI®).
The industry PMI dropped to 44.3 in July, down from 48.8 in June, signaling a steep decline across all key construction sub-sectors. The slump, driven primarily by residential building and civil engineering, paints a sobering picture for a sector that has been grappling with ongoing economic uncertainty, reduced client confidence, and a thinning pipeline of new work.
A sector-wide slowdown
S&P Global’s survey revealed that approximately 29% of construction firms reported reduced activity, citing project delays, fewer incoming new business opportunities, and weak client sentiment as central issues.
“Having trended upwards in recent months, our survey data for July signals a fresh setback for the UK construction sector,” said Joe Hayes, Principal Economist at S&P Global Market Intelligence. “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.”
Civil engineering saw the most significant contraction, while housebuilding also slumped—an especially troubling signal for a sub-sector often leaned on during political campaigns to boost job creation and infrastructure promises. Commercial construction, while still in decline, fared slightly better by comparison.
Tender opportunities drying up
The volume of new work declined for the seventh consecutive month, with the sharpest fall since February. Firms cited a lack of tender opportunities and growing hesitancy from clients to commit to projects amid a clouded economic outlook.
“There’s no sugarcoating it – this data will be tough to swallow for almost everyone in construction,” said Gareth Belsham, Director of Bloom Building Consultancy. “All three subsectors of the industry saw output contract in July, with the sharpest fall coming in civil engineering. Housebuilding, the sector beloved of politicians in need of a photo opportunity, also declined badly.”
Belsham also warned that the pipeline of new work is rapidly shrinking, adding:“New order numbers have now fallen for seven months in a row, with July’s slump the worst seen since February. Little wonder contractor confidence is weak and many construction firms are laying off payrolled staff.”
Industry response: cautious cuts and cost controls
In response to falling demand, construction material purchasing declined, though at the softest pace in 2025 so far. Still, supplier delays returned for the first time in six months, and supplier prices continued to rise, fuelling inflation in operational costs, albeit at a slower rate than earlier in the year.
Employment numbers also continued their downward trend. July marked seven straight months of workforce reductions, as firms implemented lay-offs, hiring freezes, and opted not to replace departing staff.
The use of subcontractors also declined, though subcontractor rates continued to rise, highlighting the ongoing pressure on profit margins across the industry.
“Forward-looking indicators from the survey imply that UK constructors are preparing for challenging times ahead,” Hayes added. “They’re buying fewer materials and reducing the number of workers on the payroll. Expectations also continue to underwhelm, despite a modest pick-up in confidence.”
Glimmers of hope: government support and resilient developers
Despite the sector’s struggles, there are flickers of optimism. Terry Woodley, Managing Director of Development Finance at Shawbrook, pointed to government intervention as a promising development:“The new £39 billion Social and Affordable Homes Programme announced at Reeve’s Spending Review is just one example of injecting funds into the construction industry to ensure it continues to be a viable and beneficial source of economic growth.”
Woodley remained cautiously hopeful, emphasizing the resilience of developers during downturns: “Developers have proven to be agile in tough conditions, and should remain cool-headed through these difficult times, especially with the rest of H2 to look forward to.”
Even Belsham noted one faint positive: “The one bright spot is commercial sector construction. While it, too, saw output fall in July, at least more commercial schemes are being greenlit. Those that do are laser-focused on value and have a fully costed business case—there is minimal margin for error.”
Looking ahead, uncertainty remains the dominant theme
While business confidence ticked up slightly from June’s two-and-a-half-year low, it remains well below the long-term average, reflecting broader economic concerns and geopolitical instability.
“Anecdotally, companies reported a lack of tender opportunities and a hesitancy from customers to commit to projects,” Hayes concluded. “Broader themes of uncertainty, both domestically but also internationally, will do little to reignite investment appetites.”
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