UK Construction Hits Five-Year Low

Source Credit : Portfolio Prints

Overview

In July 2025, the UK construction sector experienced its sharpest contraction in more than five years. This downturn raises serious concerns over the government's ambitious plan to deliver 1.5 million new homes by mid-2029.

Sharp Drop in July’s Construction PMI

The headline S&P Global UK Construction Purchasing Managers’ Index (PMI) fell to 44.3 in July, down from 48.8 in June. This marks the sector’s most significant decline since May 2020, when the country was grappling with the first COVID-19 lockdown.

Widespread Decline Across All Sub-Sectors

All three main categories—residential, civil engineering, and commercial—reported declines:

• Residential building suffered a major drop, pulling the overall index lower.


• Civil engineering services saw the deepest contraction among the three sub-sectors.


• Commercial construction experienced a notable yet relatively milder decline.

Causes of the Downturn

Firms cited multiple pressures:

• Site delays, fewer tender opportunities, and diminished client confidence weighed heavily.


• Staffing declined for the seventh consecutive month, with widespread recruitment freezes, redundancies, and non-replacement of leavers.


• Companies are buying fewer materials, even as subcontractor rates continue climbing.

Broader Indicators Signal Systemic Strain

• Concrete sales plunged to their lowest levels since 1963, dropping to just 2.7 million cubic metres in Q2 2025—a stark reflection of the sector’s inactivity.


• Meanwhile, official output data showed no growth in total construction output in Q1 2025 compared to Q4 2024, despite some gains in new work and maintenance in March.

Impact on Housing Targets and the Economy

The sluggish momentum throws into question the government's pledge to build 1.5 million new homes by mid-2029. Without a sharp turnaround, hitting that target seems increasingly unlikely.

Given that construction accounts for roughly 6% of UK GDP, this slump risks dragging down broader economic confidence, affecting builder firms, material suppliers, and associated sectors.

Outlook & Next Steps

There’s cautious optimism that the Bank of England might lower interest rates, potentially offering some reprieve. Industry leaders are also calling for:

• Faster planning approvals, especially for small-scale housing projects.


• Financial reforms to restore developer and buyer confidence.


• Immediate government action beyond rhetoric to support infrastructure and housing delivery

Summary Table

Indicator	July 2025 Value / Status
Construction PMI	Fell to 44.3 (lowest since May 2020)
Residential Activity	Sharp decline
Civil Engineering	Steepest contraction among sub-sectors
Employment	Falling for 7th consecutive month
Material Purchases	Dropped; subcontractor rates rising
Ready-mixed Concrete Sales	Lowest since 1963 (~2.7 million m³ in Q2)
Q1 2025 Output vs. Q4 2024	Flat (0.0% growth), despite sectoral divergences
Government's 1.5M Homes Target	Under threat if current trends persist

The July figures serve as a red flag for one of the UK’s critical economic sectors. Significant policy shifts and targeted support seem essential if the UK hopes to realign its housing ambitions with on-the-ground realities. Let me know if you'd like deeper analysis on specific regions or what this means for builders, investors, or policymakers.