Housing and civils hit hard as construction activity plummets  

A sharp downturn hit the UK construction sector in February with the lowest activity level since May 2020.

The latest S&P Global UK Construction Purchasing Managers’ Index (PMI) data, released this morning (6 March), showed an activity index of 44.6.

This was down from the 48.1 recorded for January and below the neutral 50 mark.

S&P described “steep declines” in housing and civil engineering activity.

Residential construction was the weakest-performing sector, with an index reading of 39.3 in February compared with 44.9 the month before.

S&P said this was the fifth consecutive month of decline in this sector and the sharpest contraction since early 2009, excluding the Covid pandemic.

Weak demand, elevated borrowing costs and a lack of new work to replace completed projects were the main factors behind the slump, according to the latest data.

Civil engineering output also suffered a severe decline from 44.6 to 39.5 last month – the lowest level since October 2020.

“Sharply declining order books rippled through the UK construction sector in February, leading to accelerated reductions in output volumes, employment and input buying,” said Tim Moore, economics director at S&P Global Market Intelligence.

But he added that commercial construction showed “a degree of resilience” with a reading of 49 versus 48.9 in January.

New orders also fell at their fastest monthly rate since May 2020. The S&P report mentioned “delayed decision-making among clients, reflecting squeezed budgets and concerns about the economic outlook”.

Some firms also noted the impact of cutbacks to business investment spending plans.

With demand deteriorating, construction firms also reduced staffing levels for the second consecutive month and the fastest rate since November 2020.

Lower workforce numbers “also led to the steepest fall in subcontractor usage since May 2020”, said S&P.

It added that cost inflation accelerated in February, reaching its highest level since March 2023.

Almost two-fifths of firms reported higher input prices, citing rising costs for raw materials, energy, transport and wages. Only 3 per cent noted a reduction in prices.

Weak demand conditions were attributed to entrenched caution among clients, subdued consumer confidence, and lacklustre economic performance.

Some optimism remains despite the bleak headline data for February.

S&P said that almost 40 per cent of surveyed firms expected an upturn in output in the year ahead, and only 17 per cent predicted a decline.

“Hopes of an improvement in underlying market conditions and lower borrowing costs helped to support confidence,” S&P added.

Industry analysts reacted with concern to the latest data although they noted some reasons for optimism too.

Huda As’ad, Accenture UK’s capital projects lead, said: “Uncertainty and delayed decision making on major projects are taking its toll on the construction sector.

“As we witness another fall in construction output – with levels at a near five-year low – the combined pressures of slowing demand and supply chain struggles continue to pile pressure on the industry.”

Neil Morey, technical director at Egis subsidiary Thomas & Adamson, described a “worsening picture” for housebuilding and infrastructure in particular – both of them “key investment priorities for the government”.

Morey noted “a strong pipeline of projects emerging throughout the year across various sectors during the first couple of months of 2025”.

But he concluded that the construction sector was feeling the impact of “intensifying” inflation, macroeconomic uncertainty and “the high cost of finance”.

Michael O’Shea, construction partner at law firm Gowling WLG, pointed to lower order books and “increased cost pressures” as two key reasons for February’s PMI decrease.

“Recent economic uncertainty will have only added to the fall in activity with threats of tariffs from the US and a potential global trade war,” he added.

O’Shea said he expected the government to introduce its Planning and Infrastructure Bill later in March.

Combined with the updated National Policy Framework, this “offers some hope on the horizon” to accelerate the construction of new infrastructure and homes, he added.