construction output still in decline
The headline S&P Global UK Construction Purchasing Managers’ Index (PMI) posted 46.4 in March, up from a 57-month low of 44.6 in February but still well below the neutral 50.0 threshold.
According to the survey compilers, the March reading indicates “a solid pace of contraction” for UK construction at a time when the government is desperately trying to promote its ‘build, baby, build’ message.
Civil engineering (at 38.8, down from 39.5 in February) was the weakest-performing area of activity in March. The sharp decline in output levels was attributed to delayed decision-making on new projects and a generally subdued pipeline of major infrastructure work. The rate of contraction accelerated to its fastest since October 2020.
The reading for residential construction activity improved from 39.3 in February to 44.7 in March, so house-building is still in decline, only less rapidly than before. Survey respondents typically commented on weak demand conditions, although some suggested that easing borrowing costs had helped to support confidence.
Commercial building was again to least badly performing category, although February’s score of 49.0 became 47.4 in March, indicating an accelerating decline – its rate of contraction was the fastest since January 2021. Lower business activity was linked to lacklustre UK economic prospects and the impact of rising geopolitical uncertainty on clients’ investment spending.
Sluggish demand conditions contributed to another marked deterioration in construction order books. Lower levels of incoming new work have been recorded throughout 2025 to date. Construction companies often noted a lack of sales enquiries and greater competition for new work.
Lower workloads, elevated interest rates and worries about the broader economic outlook continued to weigh on business activity expectations in March. Confidence across the construction sector slipped to its lowest since October 2023, the survey found.
Some firms, however, noted positive sentiment regarding the outlook for demand across the renewable energy sector and hopes of a turnaround in infrastructure workloads.
Mirroring the trends for output and new work, latest survey data indicated a reduction in staffing numbers for the third consecutive month. The rate of job shedding was the steepest since October 2020. Subcontractor usage also decreased at a solid pace in March, while construction companies reported further cutbacks to their input buying in response to lower workloads.
Finally, higher payroll costs due to forthcoming rises in national insurance contributions and the national minimum wage continued to push up average cost burdens. The overall rate of input price inflation accelerated to its strongest since January 2023.
Tim Moore, economics director at S&P Global Market Intelligence, which compiles the monthly survey, said: “March data highlighted a challenging month for UK construction companies as sharply reduced order volumes continued to weigh on overall workloads.
“Civil engineering experienced the biggest setback as activity decreased to the greatest extent since October 2020. Survey respondents commented on subdued sales pipelines and a subsequent lack of infrastructure work to replace completed projects.
“Commercial work also saw a headwind from delayed decision-making on major projects, largely due to worries about the impact of rising global economic uncertainty. The downturn in residential construction activity nonetheless eased since February, providing a source
of encouragement despite ongoing reports of sluggish demand conditions.
“Construction companies remained cautious about their year ahead growth prospects, as fewer sales conversions and a third successive monthly reduction in total new work hit confidence levels. Overall business optimism slipped to its lowest since October 2023.
“A lack of new projects, alongside pressure on margins from rising payroll costs, led to hiring freezes and the non-replacement of departing staff in March. The net result was the fastest pace of job shedding across the construction sector for nearly four-and-a-half years.”
Some think that the current tough conditions are only going to get hard with the USA imposing trade tariffs on the world and risking a global recession.
Gareth Belsham, director of Bloom Building Consultancy, said: “There’s only one thing worse than this snapshot of declining industry sentiment – the fact that it was captured before Donald Trump’s ‘Liberation Day’ announcement. While the direct impact of US tariffs on UK construction will be modest, their chilling effect on business sentiment is real. Boards worrying about a possible recession later this year need a very good reason to sign off on a big capital investment right now.
“The March PMI survey found that confidence among contractors had slipped to its lowest level in 18 months, and that output was contracting across the board. While commercial property work has been holding up well, new orders have been in short supply in both infrastructure construction and housebuilding.
“The shortage of skilled workers has been driving up wages for months, and the combination of this cost pressure with the slowdown in demand has led some building firms to apply the emergency brake when it comes to hiring. Headline figures that show the rate of job shedding has climbed to levels not seen since the depths of the pandemic make for uncomfortable reading.”
However, he could still find an upside: “There are a few rays of light though. April’s increases to the national minimum wage and employer national insurance contributions will have a limited impact on many construction firms. With the majority of subcontractors being self-employed, main contractors rarely need to pay NI or hourly wages to site workers. And the darkening economic backdrop is likely to accelerate the pace of interest rate cuts through 2025, which will make it easier for developers to buy land and get building.”
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